INVESTMENT HIGHLIGHTS

• FY18 earnings grew +13.3%yoy in view of lower inventory losses, written down and written off expense

• Nonetheless, revenue growth tapered substantially despite the marginal reduction in new stores launching

• Declared 1QFY19 first interim dividend of 2.5sen per share, in line with its historical practice

• Maintain NEUTRAL with an adjusted TP of RM5.55

Earnings met our and consensus expectations. Padini Holdings Bhd’s (Padini) 4QFY18 earnings came in at RM57.3m. This brings its full year FY18 earnings to RM178.3m which met ours and consensus’ expectations, accounting for 100.0% and 103.3% of full year FY18 earnings forecasts respectively. Against last year, FY18 revenue increased by +6.9%yoy. Nonetheless, FY18 earnings grew at a faster pace of +13.3%yoy as gross profit margin normalised to above 40%.

Prudent cost management. The improvement in FY18 earnings was mainly premised on the recovery in GP margin to 41.0% in comparison to 39.4% recorded in FY17. The decline in GP margin last year was due to the initiative of the management to embark on a more stringent inventory policy. They implemented stricter write off and write down estimates and this resulted in inventory losses, written down and written off expense of RM32.2m. Nonetheless, this expense dropped by more than a third to RM9.4m in FY18 resulting in improved earnings.

However, revenue growth tapered in FY18. The FY18 revenue growth reduced to +6.9%yoy in comparison to +20.7%yoy recorded in FY17. This was mainly attributable to reduction in total stores count to 12 stores from 14 stores as at FY17. We believe that this is attributable to (i) longer gestation period of new stores; and (ii) declining same store sales growth (SSSG) for both Padini Concept and Brand Outlets store.

First interim dividend declared. To recall, the group already declared full year FY18 dividend 11.5sen. During this quarter, a first interim dividend of 2.5sen per share was declared (vs Q1FY18:2.5sen) for FY19.

Impact to earnings. We made no changes to our FY19 and FY20 earnings forecasts post earnings announcement.

Source: MIDF Research - 28 Aug 2018