INVESTMENT HIGHLIGHTS

• 2QFY19 earnings improved to RM53.2m, triple the amount recorded in the previous quarter

• The stronger earnings mainly attributed to the heavy promotional activities

• Third interim dividend declared of 2.5sen

• Upgrade to Neutral with a revised TP of RM3.59

Earnings within our and consensus expectations. Padini Holdings Bhd’s (Padini) 2QFY19 earnings came in at RM53.2m. This brings its 1HFY19 earnings to RM71.1m which is within ours and consensus expectations, accounting for 44.1% and 46.1% of full year FY19 earnings forecasts respectively. This is as we expect a stronger 2HFY19 driven by festivity period particularly Hari Raya Aidilfitri.

Earnings growth attributed to promotional activities. The 2QFY19 earnings improved by. This was mainly attributable to the Christmas season, year-end school holidays and the nationwide five days special sales promotion occurred during the quarter. As a result, net profit margin expanded to 11.5% from 5.4% recorded in 1QFY19.

Third interim dividend declared. Third interim dividend of 2.5sen per share was declared for FY19. This brings its cumulative dividend to 7.5sen per share which is equal to the corresponding period in FY18.

Impact to earnings. We are revising our FY19 and FY20 earnings forecasts downwards by -1.56% and -2.50% we input a slightly higher advertising and promotional expense.

Target price. We are revising our target price to RM3.59 (previously RM4.08) which is based on pegging the FY20 EPS of 25.6sen per share to PER of 14.0x (previously 15.5x). We re-rated the stock as we expect a subdued earnings growth in the near-term due to the saturated fashion market. The assigned PER multiple is -1.0SD below the group’s one-year average historical PER.

Source: MIDF Research - 28 Feb 2019