Padini’s 9MFY14 results were in line with consensus and our estimates. Revenue and earnings were stronger, mainly boosted by the opening of new stores.  A 2.5 sen fourth interim dividend was proposed. Maintain NEUTRAL with FV unchanged at MYR2.15.

• New  outlets  lifted  earnings.  Padini’s  9MFY14  revenue  and  earnings rose by 9.4% and 12% y-o-y respectively.  The  Padini  label  was  still  the biggest  revenue  generator,  contributing  32%  to  the  total  revenue, followed  by  Brands  Outlet  at  29.3%  and  Vincci  at  23.5%.  Sales  were stronger  in 9MFY14  mainly driven by  the opening of new outlets. YTD, three  Padini Concept Stores  (PCS) and four  Brands Outlet  (BO) stores were opened compared with one new BO store in 9MFY13. 9MFY14 net profit trended higher, mainly supported by the stronger topline and lower effective  tax  rate.  Vis-à-vis  3Q14,  revenue  surged  by  7.3%  while  net profit was lower by 14% in 3Q14 as operating expenses rose faster than the increase in revenue.
• Margins.  The  group’s  9MFY14  gross  margin  trended  lower  to  46.7% from  47.1%  y-o-y.  Similarly,  EBIT  weakened  by  90bps  to  14.8%  from 15.7%  y-o-y  while  profit  before  tax  (PBT)  margin  also  softened  by 100bps  to  14.5%  from  15.5%  y-o-y.  The  weaker  margins  were  largely attributed to higher operating expenses arising from new store openings.
• Dividend.  A 2.5 sen fourth  interim  single-tier  dividend  was declared this quarter. We  believe Padini will  remain generous in paying out dividends in future,  given  that it  has  a  huge cash pile of  MYR126.4m as of March 2014.
• Maintain  NEUTRAL.  We  are  keeping  our  forecasts  given  the  in-line numbers.  Maintain NEUTRAL  with its FV unchanged at MYR2.15  based on 14x (2-year historical mean P/E) FY15 EPS. At the current price level, the stock still delivers a lucrative dividend yield of >5%.  Key investment risks  include  weaker  consumer  sentiment  and  the  entrance  of  new retailers.

Source: RHB