- We are downgrading Padini Holdings to a HOLD, with a
higher fair value of RM2.57/share vs. RM2.15/share previously, based on a 10%
discount to our DCF value. Our fair value implies an upside of only 11%. The
stock has rallied by a whopping 88% YTD. We have rolled our valuation forward
to FY13F and revised our earnings assumption upwards.
- Padini registered 4Q net profit of RM15mil, bringing the
full-year FY12 earnings to RM95mil, exceeding our forecast but below consensus,
accounting for only 85%. The strong earnings growth YoY was achieved on the
back of an aggressive expansion in FY12. A dividend of 2.0sen/share was declared
for FY13F.
- Earnings surged by 26% YoY on the back of a 30% growth in
revenue largely driven by an additional 20% of total area under retail
domestically. To-date, Padini has 95 stores with a total gross floor area of
circa 719,408sf.
- 4Q is traditionally the weakest quarter. Earnings declined
by 38% QoQ (86% domestic operation, 14% exports) with a marginal drop of 4% in
revenue due to:- (1) Higher selling and marketing expenses arising from five
new store openings in May; and (2) The way members redeem rebates via the
loyalty programme. Compared to the
preceding quarter, gross profit margin declined by 5.1% to 46% due to year-end
adjustments made for inventories lost and increased promotions.
- Given the strong FY12 results, we have revised our turnover per store assumption by 8%-10% and
raised FY13F-FY14F earnings by 12%-22%. Therefore, we project FY13F earnings to
grow by 17% to RM111mil on the back of the five new stores in May 2012,
followed by earnings expansion of 15% in FY14F. Prospects for FY13F remain
favourable as the five new stores would realise its full earnings potential,
apart from another new store in August. In addition, we introduce our FY15F
earnings at RM145mil. We maintain our assumption of five new stores per
year.
- We continue to assume at least 30% payout ratio in line with Padini’s historical practice with a
projected DPS of 6.0sen, representing yield of 2.6%.
- Separately, we have not included any earnings arising from
the collaboration with FJ Benjamin (FJB). We foresee minimal impact in the
near- to mediumterm until the distribution grows large in Indonesia. As a
recap, Vincci merchandise are sold to FJB at a cost plus 15% and royalties of
2% based on the sales of merchandise by FJB in Indonesia. However, Padini will
allocate 50% of the royalty received as contributions to FJB for branding and promotional
activities for the VNC label.
- Trading now at a 14x PE for FY13F, we believe it is fairly
valued, considering no visibility of new store openings in the pipeline at this
juncture and growth to decelerate due to a larger base, while also trading
above its historical average PE of 10x and below market of 15x.
- Nevertheless, we still like Padini and believe that prospects remain bright underpinned
by:- (1) Sustainable earnings growth (3-year CAGR: 15%); (2) Strong franchise
value with acclaimed brand names; and (3) Robust growth and penetration of
Brands Outlet into the middle- to lower-end markets. Note that Brands Outlet’s
EBIT grew by 164% YoY, making up 17% of EBIT in FY11 and hence, sales momentum
is likely to strengthen further moving forward.
Source: AmeSecurities
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