INVESTMENT HIGHLIGHTS

• 3QFY19 earnings dropped by -13.0%yoy to RM34.6m,

• The lower earnings mainly attributed to a higher cost of sales and effective tax rate

• Fourth interim and special dividend declared of 2.5sen and 1.5sen per share respectively

• Maintain Neutral with an unchanged TP of RM3.59

Earnings within our and consensus expectations. Padini Holdings Bhd’s (Padini) 3QFY19 earnings came in at RM34.6m. This brings its 9MFY19 earnings to RM105.7m which is broadly within ours and consensus expectations, accounting for 66.0% and 70.9% of full year FY19 earnings forecasts respectively. We are expecting a stronger 4QFY19 driven by festivity period, particularly from Hari Raya Aidilfitri.

3QFY19 earnings dragged by higher cost of sales and tax. The 3QFY19 revenue grew by +11.5%yoy to RM474.2m. This was mainly attributable to the sales generated from four new stores that were opened in the 4QFY18. However, the higher cost of sales (+20.2yoy) and higher effective tax rate (3QFY19:26.5% vs 3QFY18:20.5%) led - 13.0%yoy declined in 3QFY19 earnings. As a result, net profit margin compressed to 7.3% from 9.4% recorded in 3QFY18.

Fourth interim and special dividend declared. Fourth interim and special dividend declared of 2.5sen and 1.5sen per share respectively were declared for FY19. This brings its cumulative dividend to 11.5sen per share which is equal to the corresponding period in FY18.

Impact to earnings. We made no changes to our forecast earnings as it is still in line with our expectation.

Target price. We are revising our target price to RM3.59 (previously RM3.59) which is based on pegging the FY20 EPS of 25.6sen per share to PER of 14.0x. The assigned PER multiple is -1.0SD below the group’s one-year average historical PER.

Source: MIDF Research - 29 May 2019