Padini  (PAD)’s  9MFY13  results  were  slightly  below  consensus  but within our estimates. Sales rose 10.1% y-o-y, underpinned by new store openings  and  stronger  buying  over  the  Chinese  New  Year  period. However,  net  profit  was  weaker  by  12.7%  y-o-y  due  to  softening margins.  The  Group  proposed  a  final  dividend  of  another  2  sen, bringing  its  full-year  DPS  to  8  sen,  as  expected.  Maintain  NEUTRAL, with MYR1.95 FV.

- Chinese  New  Year  boost.  PAD’s 9MFY13  revenue  trended  higher  by 10.1%  y-o-y,  mainly  driven  by  new  store  openings  and  better  sales  on the  back  of  the  Chinese  New  Year  shopping  spree.  Nonetheless,  its earnings moderated by 12.7% y-o-y, from MYR79.8m to MYR 69.7m, as higher  cost  of  sales  (+16.4%  y-o-y)  and  costlier  operating  expenses (+13%  y-o-y)  attributable  to  the  new  stores  offset  the  stronger  sales numbers. Compared to 2Q13, 3Q13 revenue slipped marginally by 1.8% but earnings surged by 27.8%, due solely to a better gross margin in the quarter. 

- Margins  still  weak.  Its  9MFY13  gross  profit  margin  dipped  by  290bps, from  50%  to  47.1%,  pulled  down  by  the  higher  cost  of  goods  as customers  switched  to  more  affordable  merchandise  with  lower  mark-ups. Its 9MFY13 EBIT margin also decreased by 380bps y-o-y to 15.8% on  higher  administrative  costs  (+22.1%)  and  selling  and  marketing expenses (+10.9%) from the new store openings. 

- Seven new stores in 1HFY14. As expected, a final single-tier dividend of 2 sen was proposed, bringing FY13’s DPS to 8 sen. The momentum of new store openings will resume in 1HFY14, with seven new outlets in the  pipeline.  The  company  plans  to  open  a  Brands  Outlet  and  a  Padini Concept Store in three locations – Miri’s Imperial City Mall, Seremban’s Palm Mall and Penang’s Gurney Paragon Mall.  It  also  plans  to  open  a Brands Outlet store in Langkawi’s Fair Shopping Mall.

- Maintain NEUTRAL. As Management is expecting a weaker than usual 4QFY13  due  to  softening  consumer  sentiment,  we  are  maintaining  a NEUTRAL  call  on  the  stock.  Our  FV  remains  unchanged  at  MYR1.95, based on 14x FY14 EPS.

Source: RHB