Period

2Q16/1H16

Actual vs. Expectations

Padini’s 1H16 net profit (NP) registered at RM64.9m (+83.1% YoY), beating our/consensus FY16 NP estimates by 14.7%/11.0%. 2Q16 was largely driven by promotional activities capitalising on the year-end and Christmas shopping season.

Dividends

Second interim single-tier dividend of 2.5 sen was declared, bringing YTD payout to 5.0 sen, which is deemed broadly in line with our FY16E NDPS of 12.0 sen.

Key Results Highlights

YoY, 1H16 sales stood at RM610.0m (+29.1% YoY) given the bigger store base of the more well-received 12 Padini Concept stores and Brands Outlet stores as compared to 2H15 (Refer page 2 of segmental breakdown). In addition, the company enjoys a more streamlined store base with a lower concentration of concession stores in favour of more profitable freestanding stores.

QoQ, 2Q16 recorded a turnover of RM340.4m which outperformed 1Q16 by 26.3%, with the year-end and Christmas shopping season being the primary catalyst for larger consumer expenditure. However, as a result of the company’s aggressive discounting and promotional efforts to capture and maintain a larger market share during the period, 2Q16 NP ultimately stood at RM33.1m (+3.9% QoQ) despite the substantial growth in sales.

Outlook

Padini appears to be least affected by the decline in consumer sentiment during 2015, given the management’s strong direction and brand strategy to maintain market share.

With management’s target for at least 10 new stores to be opened by end-FY16, Padini will be well positioned to ride on the up-wave with the advantage of a wider store presence when macroeconomic headwinds simmer down and consumer sentiment recovers.

Change to Forecasts

Due to better-than-expected results and outlook, we are upgrading our estimated increase in Same-Store- Sales Growth (SSSG) for the Padini brands to 22.8% in FY16 from our pre-revised SSSG of 18.8%. This improves our FY16E and FY17E NP by 3.3% and 2.8%.

Rating

Maintain MARKET PERFORM

Valuation

We are upgrading our TP from RM1.82 to RM2.21, ascribing a new rolled-over 13x FY17E PER (implying +0.5SD over its 5-year fwd average PER) on 17.0 sen EPS, to reflect its expanding SSSG potential. Our previous valuation was based on 12x FY16E PER on 15.2 sen EPS.

For the time being, we are not upgrading our FY16E and FY17E dividend payouts as it may be too hopeful.

Risks

Lower-than-expected operating expense, incurred from the opening of new stores.

Lower spending by consumers due to rising costs.

Source: Kenanga Research - 24 Feb 2016