- We maintain our HOLD recommendation on Padini Holdings,
with a lower fair of RM1.80/share vs. RM2.00/share previously, based on a 10%
discount to our DCF value.
- For 1QFY13, Padini registered a core net profit of
RM26mil. We deem the results to be expectations – accounting for 24% and 23% of
within our and consensus estimates, respectively. A second interim dividend of
2.0sen/share was declared, bringing total DPS to 4.0sen for FY13F.
- Having said that, we have trimmed and fine-tuned our EPS
assumption by 3%-7% to account for:- (1)
Lower same store sales growth of between 7.5%%-10% for FY13FFY15F. This is
because we see a slowdown in store expansion for the immediate- to near-term
underpinned by the lack of availability of floor space in existing malls.
Although, we are aware of circa 20 upcoming retail malls from CY13-CY15, we
have yet not factored a higher store expansion due to a possible delay in
completion. Our five new store assumption for FY13F-FY15F is maintained. (2)
Vincci+ outlets are progressively being closed
down due to underperformance because consumers are not keen on the range
of “premium” shoes coupled with its close association with Vincci. One store has just closed with remaining
three to be closed upon the expiry of their leases by CY13. (3) Lower EBITDA margin of 17% vs. 17.4% in
FY12, to account for higher operating expenses arising from recently-opened new
stores and promotional activities to continue retain and attract customers. Note
that H&M foothold into Malaysia could potentially impact Padini’s earnings.
Having said, we believe visibility will be clearer after a 6-months’
impact.
- Despite a 13% revenue growth YoY, earnings slipped by 5%
due to increased discounting activities and higher operating expenses at newly
opened stores. Sequentially, earnings increased by a whopping 69% on the back
of a 19% revenue growth. This largely came from the Hari Raya Adilfitri and
National Day celebration sales. Note that 4Q is traditionally the weakest
quarter.
- Management currently is in negotiations with the retail
malls to open three new stores, comprising 2 Brands Outlet stores (Miri and Seremban)
and 1 Concept Store (Miri). We are of the view that Padini is on track to hit
our assumption of five additional stores for FY13F. Meanwhile, children’s wear
has been launched in selected larger Brands Outlet stores.
- At current level, the stock is trading at an implied PE of
12x FY13F, slightly above its average 5-year PE of 10x. Our HOLD recommendation
is centred on a slower growth expansion in the immediate- to near-term
underpinned by the lack of floor space availability
and possible impact from H&M.
Nonetheless, we still like Padini for its strong franchise value and
acclaimed brands coupled with robust growth of Brands Outlet.
Source: AmeSecurities
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