INVESTMENT HIGHLIGHTS

• 1QFY18 earnings rose by +9.1%yoy to RM31.2m

• 1Q is a seasonally weaker quarter

• Expect performance to be better in the coming quarters

• Interim dividend of 2.5sen per share declared

• Maintain NEUTRAL with a revised TP of RM4.77

Earnings met our and consensus expectations. Padini’s 1QFY18 earnings came in at RM31.2m which met expectations. This accounted for 18% and 17% of our and consensus’ full year FY18 earnings forecasts respectively as 1Q is seasonally the weakest quarter for Padini due to the lack of major festivities. Against last year, revenue and earnings increased by +1.7%yoy and +9.1%yoy respectively while on the contrary, revenue and earnings dropped at -31.6%qoq and - 20.9%qoq respectively on a quarterly sequential basis as the previous quarter i.e. 4Q was its seasonally strongest quarter.

The 1QFY18’s earnings is as anticipated. Revenue for 1QFY18 increased marginally by +1.7%yoy to RM315.2m. The marginal increase was due to the earlier celebration of Hari Raya Aidilfitri as well as the four days special sales promotion which both was held in June 2017. Consequently, stronger revenue and earnings were seen last quarter. Consistently, selling and distribution expenses increased by +RM7m compared to the corresponding quarter due to the increase in rental and staff cost attributable to the additional six Padini Concept Stores (PCS) and seven Brand Outlet (BO) stores opened during the year.

Interim dividend declared. The company has declared the 2nd interim dividend of 2.5sen per ordinary share (single tier) for FY18, which will be payable in December 2017. This brings the cumulative earnings to 5.0sen.

Future prospect. We expect that the group performance to further pick up in the coming quarters due to the: (i) higher sales generated from Christmas and year-end sales in the 2Q; (ii) additional contribution of opening of 12 new stores in FY18 and; (iii) a stronger Ringgit will reduce cost of production as Padini’s import most of its product.

Maintain NEUTRAL with revised TP of RM4.77. We are maintaining our NEUTRAL stance on Padini with a revised target price of RM4.77 (previously RM3.79). We roll forward our valuation base year to FY19F with a higher PER of 15.5x (previously 14x) pegged to EPS19 of 30.8sen. We believe Padini deserves to be trading at a higher PER due to its plan to grow as regional player with a plan to open of stores in Cambodia in FY18 as a start.

Source: MIDF Research - 30 Nov 2017