PADINI (FV RM2.22 - BUY) 9MFY12 Results Review: Still in Good Form

Padini’s  9MFY12 earnings were  above consensus and our estimates.  The 30.5% and 39.5% growth in the company’s top- and bottom-lines was boosted by better 1H sales and the opening of new outlets. Meanwhile, the better cost management and stellar revenue growth due to aggressive expansion gave rise to an 80bps uptick in  EBIT margin  to 19.6%. The company has proposed a single-tier third interim dividend of 2 sen per share for the quarter. Given the impressive revenue growth and bright prospects, we are revising up our FY12 and FY13 earnings by 7.1% and 4.4% respectively. Maintain BUY, with a new FV of RM2.22.

More spectacular numbers. Padini registered more strong results, with revenue and net profit climbing 30.5% and 39.5% y-o-y respectively. This robust showing was mainly driven by stronger sales in 1H and the opening of new stores as the company added 98k sq ft in gross floor area. On q-o-q basis, the top- and bottom-lines were lower by 13.1% and 15.0%, which was expected due to: i) the earlier Chinese New Year, which led to the shopping for festive goods occurring in December last year, and ii) retail activity was subdued for a longer period before promotions and retail activity started to pick up again in March 2012.

EBIT margin expands.  The company’s YTD gross margin continued  to ease, moderating to  50%  from  54% y-o-y  as  raw material prices  spiraled  and  the company experienced exceptionally higher sell-through rates for its merchandise for last year. On a brighter note, EBIT margin improved by 80bps to 19.6% vs 18.8% y-o-y, largely supported by better cost management (+11.2%) and higher sales growth (+30.5%).

To pay a higher  dividend, as expected.  The group  has  declared a single-tier third interim dividend of 2 sen per share. We believe that management will be more generous with its future dividends given the group’s consistently good performance.

Maintain BUY. In view of the group’s potential collaboration with FJ Benjamin Indonesia and steady outlet expansion, we remain optimistic on Padini’s future outlook. We  are revisiting  our FY12 and FY13 figures and  raising our  earnings forecasts by 7.1% and 4.4% respectively due to stronger-than-expected revenue growth. Maintain BUY, with a FV of RM2.22, based on 14x FY13 EPS.

Source: OSK