Padini’s 1HFY14 results were  within consensus and our forecasts.  The strong set of numbers was backed by sales booked during the  festive season  and  the  encouraging performance from its  Brands Outlet  label. Maintain  BUY  with  our  FV  at  MYR1.95,  as  we  continue  to  like  the group’s aggressive store expansion strategy and good dividend yield.

• The worst may  be over.  Padini’s 1HFY14 sales and net profit jumped by  10.4%  and  26.3%  y-o-y  respectively  due  to  a  healthy  topline  and better gross margin. The Padini label  was the largest revenue generator, contributing  32.2% of total revenue, followed by  Brands Outlet  at 28.3% and Vincci at 23.8%. The increase in revenue came mostly from  Brands Outlet  stores  which  recorded  high  same-store-sales  growth  (SSSG). Earnings  improved  significantly  due  to  stronger  sales,  a  fatter  gross margin  and  a  relatively  slower  increase  in  operating  expenses. Compared  with  2Q13,  the  company’s  top-  and  bottomline  rose  12.8% and  48.4%  y-o-y  respectively,  thanks  to  a  higher  contribution  from Brands Outlet stores.
• Margin  expansion.  The  group’s  gross  margin  improved  to  47%  from 46% y-o-y. Its  EBIT and PBT margin also trended higher by 230bps and 220bps  y-o-y  due  to  better  turnover  and  lower  operating  costs.  Padini declared  a  2.5  sen  third  interim  dividend,  which  puts  it  on  track  to achieve  a  full-year  forecasted  DPS  of  10  sen. We  expect  it  to  remain generous in paying out  dividends in future,  as it  is sitting on a cash pile of MYR155m as of Dec 2013.
• More new stores to open. To date, the group has opened: i) one Padini Concept  Store  (PCS)  and  one  Brands  Outlet  store  (BO)  in  Gurney Paragon Mall, Penang, ii)  one BO in  Langkawi Fair shopping mall, and iii)  one  BO  in  Permaisuri  Imperial  City  Mall,  Miri.  We  expect  one  BO store and two PCS outlets to be launched in Seremban, Negeri Sembilan and Miri, Sarawak in the future.
• Maintain  BUY.  We  keep  our  forecasts  unchanged  due  to  the  in-line numbers.  Maintain BUY  with  its  FV  unchanged at  MYR1.95,  based on 14x FY14 EPS. Its dividend yield remains attractive at 6.0%.

Financial Exhibits

SWOT Analysis

Company Profile
Padini is involved in the retailing of apparel, footwear and accessories.

Recommendation Chart
 

Source: RHB