Maintain HOLD

3QFY6/16 results beat estimates whereby sales were driven by strong organic growth and new stores. While a fourth interim net DPS of 2.5sen was in line, a 1.5sen special net DPS came as a surprise. We increase FY16-18 earnings by 4-10%. Our higher TP of MYR2.30 (+30sen) is pegged to 11x FY17 PER (from 10.5x CY16 PER).

Strong topline growth

3QFY16 net profit was MYR35.1m (+32% YoY, +6% QoQ), bringing 9MFY16 net profit to MYR100.0m (+61.2% YoY) and accounting for 83%/91% of our/consensus’ FY16 estimates. 3QFY16’s YoY earnings were driven by: (1) strong organic growth whereby same-store sales growth (SSSG) was +18% and +9% at Padini Concept Store and Brands Outlet respectively; and (2) contribution from new outlets as Padini had opened 13 new stores in 9MFY16. Meanwhile, we also believe the seasonally stronger 3QFY16 was lifted by the Chinese New Year shopping season and Padini’s affordable merchandise pricing and aggressive year-round promotions.

Increase earnings forecasts and TP

We revise FY16/17/18 net profit forecasts by +10%/+4%/+6% following our key assumption adjustments (i.e. revenue and opex). Consequently, we increase our TP by 30sen to MYR2.30 pegged to 11x FY17 PER (from 10.5x CY16 PER). Our 11x peg is at 1-year forward PER mean and we believe it is fair premised on current soft consumer sentiment and intense competition in the fashion retail industry.

Hari Raya shopping impact in 4QFY16

We expect sales volume to seasonally ease in Apr-May 2016 before the pre-Hari Raya shopping season takes place in Jun 2016 (one month earnings impact in 4QFY16). Nonetheless, we believe near-term earnings growth would be supported by sustained organic growth and new outlets as Padini has identified at least four new outlets to be opened in FY17.

Source: Maybank Research - 19 May 2016