Review

• Padini Berhad’s (Padini) 1HFY17 results came in within ours and consensus estimates at 54% and 56% respectively. Padini achieved a record breaking core profit of RM83.4mn (+27.7% YoY) for 1HFY17 due to improvements in same-store-sales growth as well as maiden contributions from 5 new Padini Concept Stores and 8 Brands Outlets, which opened in early-16.

• Padini’s 2QFY17 PBT increased to RM72.7mn (+83.5% QoQ, +63.4% YoY) attributable to increased sales from year-end school holidays and festivities. Revenue improved to its highest record of RM426.6mn (+37.6% QoQ, 25.3% YoY) and gross margin expanded by 3.6p.p. QoQ and 3.0p.p. YoY due to less markdowns in 2QFY17. These have more than offset the increase in operating expenses of RM18.3mn (+20.0 YoY), which caused by increase in staff salaries and rentals for the new stores.

• In terms of breakdown, all brands recorded higher quarterly revenues and PBT by double-digit. Cumulatively, Seed and Vincci chalked up strong PBT of 54.4% and >100% YoY respectively due to business restructuring exercise. Padini Corporation segment has also continued to perform with a PBT increase of 14.6% YoY for 1HFY17.

• The board declares a second interim dividend of 2.5sen/share for the quarter under review.

Impact

• No change in our earnings forecast.

Outlook

• Despite weakening of Ringgit and challenging economic situation, we believe Padini is less impacted by focusing on the value-for-money segment with the Brand Outlets approach.

• Moreover, the business restructuring exercise for Vincci and Seed has also started to display positive results. Even that, Padini will have to keep cautious of Mikihouse and Yee Fong Hung segments in order to produce consistent results in the coming 2H.

• Overall, with 1) strong brand name, 2) continuous expansion in new stores, and 3) recovery in the consumer sentiment, we believe that Padini will be able to deliver strong results in FY17.

Valuation

• We maintain our TP of RM4.00 based on 16x FY17EPS. At current price level, the stock also offers an attractive dividend yield of 5.8% and 7.0% in FY17 and FY18 respectively. Maintain Buy.

Source: TA Research - 21 Feb 2017