Padini Holdings - A Boost From New Stores

Padini’s full year FY12 earnings were within consensus and our estimates. The better 1H sales and new store openings lifted revenue and earnings by 29.8% and 26% y-o-y respectively. Gross profit and EBIT margin, however, were lower due to year-end inventory adjustments and higher selling and marketing expenses. The group declared a single-tier first interim dividend of 2 sen per share. Maintain NEUTRAL, with FV unchanged at RM2.22.

As expected. The group’s results were in line with consensus and our estimates, with revenue and earnings surging 29.8% and 26% growth y-o-y respectively to RM725.2m and RM94.9m. The stellar results were underpinned by better sales due to aggressive new store openings. The company’s total area under rental has grown by about 129,600 sq ft, or an increase of 22.8% y-o-y. Vis-à-vis 3QFY12, turnover and profit trended lower by 4.2% and 37.9% respectively as 4Q is seasonally Padini’s weakest quarter.

Lower margins. Gross profit margin declined by 4.4 ppts from 53.4% to 48% y-o-y, mainly attributed to: i) year-end adjustments made for inventory lost through pilferage, obsolescence and write-downs to net realizable value, and ii) the scaling up of promotions. Likewise, EBIT margin narrowed to 18.3% from 19% y-o-y due to higher selling and marketing expenses (+19.1% y-o-y).

Declares 2 sen dividend. The FY12 total dividend of 6 sen per share is higher than the 4 sen paid last year. This will translate into a dividend yield of 2.6%. We believe the group will still be generous in dishing out dividends in the future. Meanwhile, the group proposed a first interim single-tier dividend of 2 sen per share for FY13.

Maintain NEUTRAL. Given that the results were in line with our estimates, we are leaving our FY13 forecasts unchanged. Maintain Neutral in view of the stock’s expensive valuation, although we still like the group’s strong fundamentals and recent collaboration with FJ Benjamin Indonesia to tap into the country’s huge potential. Our FV of RM2.22 is based on 14x on FY13 EPS.

Source: OSK