INVESTMENT HIGHLIGHTS

• 2QFY17 earnings rose by +64.7%yoy to RM54.5m

• Revenue increased by +25.3%yoy to RM426.6m due to positive SSSG and opening of new stores

• Gross profit and net profit margin improved

• Third interim dividend for FY17 of 2.5sen was declared

• Upgrade to BUY with a revised TP of RM2.98 based on a PER18 of 11.0x

Earnings above expectation. Padini Holdings Berhad’s 2QFY17 earnings rose by +90.5%qoq and +64.7%yoy to RM54.5m. With the stronger-than-expected 2Q performance, 6MFY17 cumulative earnings outpaced our and consensus full year FY17 expectations, accounting for 56.6% and 55.7% of full year forecasts respectively. Historically, the company’s 2H earnings (January to June) is the strongest compared with its 1H earnings.

2QFY17 revenue increased by +25.3%yoy. Revenue for 2QFY17 increased by +25.3%yoy to RM426.6m mainly attributable to the positive same store sales growth (SSSG) coupled with the eight Brands Outlet stores and five Padini Concept stores that were in operation after the end of the comparative quarter of prior financial year i.e. 2QFY16.

Gross profit and net profit margin improved. The gross profit margin for the period increased by +1.9ppts from 39.9% in 2QFY16 to 41.8% due to the lesser mark downs during the quarter. Thus, the gross profit grew by +31.3%yoy to RM178.5m in 2QFY17. In addition, net profit margin improved by +3.1ppts from 9.7% in 2QFY17 to 12.8% which was mainly due to better operating efficiency as the group managed to suppress growth in operating expenses against a higher revenue growth rate.

Third interim dividend declared. A third interim single-tier dividend of 2.5sen per share was declared for FY17. The cumulative dividends declared per share for FY17 is 7.5sen per share.

Earning revision. We are revising our FY17F and FY18F earnings by +8.63% and +6.06% respectively. Our bullish earnings is premised on: (i) Better performance expected in 3Q and 4Q as seasonally both are strong quarters for the group and on; (ii) Improvements in operational efficiency due to better cost management.

Source: MIDF Research - 21 Feb 2017