1HFY14 net profit came in within expectations at 58% and 60% of our and consensus full-year estimates.
Targets to open nine new stores in FY14 with an additional retail space of c. 110,000 sq ft (+15%).
Maintain earnings forecasts,
BUY call and
TP of
MYR1.87, based on 12x CY14 PER.
What’s New
Padini’s 2QFY14 net profit of MYR28m (+48% YoY, +2% QoQ) brings 1HFY14
net profit to MYR56m (+26% YoY), in line with our and consensus
full-year earnings forecast.
Gross profit rose 13% YoY in 1HFY14 on the back of a 10% revenue growth
YoY. GP margin improved slightly by 0.9ppts to 47%. Brands Outlet
posted a SSSG of more than 30% in 2QFY14 as it continues its value
proposition amid a rising living costs backdrop. We understand that the
Padini Concept Store recorded a SSSG of 5- 6% in 2QFY14.
What’s Our View
We maintain our FY14 net profit forecast of MYR96m as we expect a
weaker 2HFY14 due to the absence of festivities to drive sales,
especially in the 4Q. With the decent 1HFY14 earnings, Padini’s net
profit is on track to recover to FY11 levels.
Five out of the nine new stores in FY14 are located in Miri, Seremban
and Langkawi. They will provide the group with new revenue stream from
the less competitive markets in the secondtier cities. Padini has opened
four new stores thus far.
Maintain BUY with an unchanged TP of MYR1.87 (12x CY14 PER). Padini is
the cheapest but highest yielding stock (we project 6.9% yield for FY14)
within our consumer sector coverage. It declared a third interim DPS of
2.5sen for FY14 (ex- 13 Mar), lifting FY14-YTD DPS to 6.5sen, on track
to meet our 11.5sen forecast for FY14
Source:
Maybank Research - 27 Feb 2014
Period 2Q14/1H14
Actual vs. Expectations Padini recorded an impressive
2Q14 net profit of RM28.4m (+2.4% QoQ, +48.4% YoY) which brought its
1H14 NP to RM56.1m (+26.3% YoY).
While the first half of the financial year is seasonally stronger, the
results still exceeded expectations, at 60.0% of the consensus full
year earnings and 59.3% of our numbers, respectively. Note that earnings
in the first half have averaged at 54.5% of full year’s earnings for
the past five years.
The earnings outperformance was mainly due to higherthan-expected
gross margins and a slower relative increase in operating expenses.
Dividends As expected, a third interim single-tier dividend of 2.5 sen was declared.
Key Result Highlights YoY, 1H14 NP
rose by 48.4% on the back of a 12.9% increase in revenue. The increase
in revenue was underpinned by the Brands Outlet stores which recorded
higher same store sales growth (SSSG) of more than 30%. At the same
time, overall gross margin expansion (+1.3ppt to 47.0%) and a slower
relative increase in operating expenses led to the strong NP growth with
net margins increasing by 2.9ppt to 12.1%.
QoQ, 2Q14 revenue grew by 7.8% due to the Christmas
and holiday shopping season. Nevertheless, NP increased by a smaller
proportion (+2.4%) as this was caused by the accruing of a portion of
the employees' bonuses due for payment in January 2014.
YTD, 1H14 revenue increased by 10.4% amid an increase
in exports in the first quarter as well as due to the better
performance achieved by the Brands Outlet stores. Coupled with a 0.9ppt
improvement in gross margins and economies of scale as highlighted
above, 1H14 NP rose substantially by 26.3%.
Outlook New 3 Brands Outlet stores and a Padini
Concept store were opened in the current financial year. In the coming
months, there are plans to add another 3 Brands Outlet stores and
another 2 Padini Concept stores which would add upwards of 90k sq ft of
retail floor space to >800k sq ft.
In addition to the new store openings, we are positive on the changes
made to merchandise development and pricing strategies, which would
allow PADINI to capitalise on the Visit Malaysia Year 2014.
Change to Forecasts We have increased our FY14-FY15E
net profit forecasts to RM97.7m-RM107.6m (+3.3%) to reflect higher
operating margins (+0.5ppt and +0.9ppt increase EBIT margins) as a
result of better economies of scale and operational efficiency.
Rating Maintain OUTPERFORM.
Our positive view on PADINI is underpinned by new store expansion
plans after a year-long hiatus, an anticipated pick-up in SSSG numbers,
as well as net cash position and high dividend yield of 7%.
Valuation We increase our TP slightly from RM1.90 to RM1.97 based on an unchanged Fwd PER of 12x over FY15 EPS.
Risks to our Call The implementation of the GST and subsidy rationalization program by the government could potentially hamper consumer spending.
Higher-than-expected operating expenses resulting from new store openings.
Source: Kenanga
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
