Padini Holdings: Slight Hiccup

Padini’s 1QFY13 results were below consensus but largely within our estimates. The aggressive opening of new stores lifted group revenue by 12.9% y-o-y but the higher operating expenses incurred in relation to those stores chipped earnings, which dipped slightly y-o-y. The company has proposed a single-tier interim dividend of 2 sen. Our FV is revised to RM2.10 as we trim our forecasts marginally on account of the higher costs. Upgrade to BUY, as the current share price provides a >15% potential upside to our FV.

As usual. The group registered a healthy 12.9% y-o-y growth in 1QFY13 revenue, fuelled by the opening of new stores in June 2012. However, its net profit came in lower y-o-y at RM25.5m vs RM26.9m in 1Q11 as operating expenses rose faster than the increase in turnover. Sales from the recently-opened new stores have been lagging compared with the expenses incurred in operating them. Vis-à-vis 4QFY12, Padini’s top- and bottom-line jumped 19.3% and 68.9% y-o-y respectively as: i) 4Q is seasonally Padini’s weakest quarter, and ii) the higher revenue in conjunction with the Hari Raya and National Day celebrations.

Thinning margins. Gross profit margin eased 2.7ppt to 46.7% y-o-y, largely due to more aggressive discounting activities, while EBIT margin dropped to 17.5% on the back of higher expenses incurred in the opening of new stores.

Declares 2 sen dividend. Padini has declared a second interim single-tier dividend of 2 sen for the quarter under review, bringing its YTD DPS to 4 sen/share. We expect the full-year FY13 dividend to be no less than 8 sen/share, translating into a decent dividend yield of 4.4%.

Upgrade to BUY. We adjust our FY13 and FY14 estimates marginally lower by 5.5% in view of the higher operating costs. Accordingly, our FV is revised slightly lower to RM2.10, based on 14X FY13 EPS. We are upgrading Padini to a BUY as the recent retracement in its share price provides a >15% potential upside to the current price. The stock price has retreated by >16% since we last downgraded it in August.

FYE June (RM m)	FY10	FY11	FY12	FY13f	FY14f
Revenue	518.8	568.5	723.4	805.1	928.3
Net Profit	61.0	75.7	96.0	101.4	117.9
% chg y-o-y	23.1	24.2	26.8	5.6	16.3
Consensus	-	-	-	112.3	126.1
EPS	9.0	11.2	14.2	15.0	17.4
DPS	3.0	4.0	6.0	8.0	10.0
Dividend yield (%)	1.6	2.2	3.3	4.4	5.5
ROE (%)	26.0	26.8	28.2	26.2	27.0
ROA (%)	17.1	17.0	19.9	17.9	18.5
PER (x)	20.2	16.3	12.8	12.1	10.4
BV/share	0.35	0.42	0.50	0.57	0.65
P/BV (x)	5.2	4.4	3.6	3.2	2.8
EV/EBITDA (x)	10.4	8.9	7.5	6.1	5.1

Results Table (RMm)

FYE Jun	1Q13	4Q12	Q-o-Q chg	YTD FY13	YTD FY12	Y-o-Y chg	Comments
Revenue	201.1	168.6	19.3	201.1	178.1	12.9	Higher due to new store expansions
EBIT	35.2	23.4	50.4	35.2	37.2	-5.4
Net interest expense	-0.4	-0.5	-20.0	-0.4	-0.5	-20.0
Associates	0.0	0.0	n.m	0.0	0.0	n.m
PBT	34.8	22.8	52.6	34.8	36.7	-5.2	Lower as revenue growth from new stores lagged compared to expenses incurred in operating them
Tax	-9.2	-7.7	19.5	-9.2	-9.8	-6.1
MI	0.0	0.0	0.0	0.0	0.0	n.m
Net profit	25.5	15.1	68.9	25.5	26.9	-5.2	Largely in line with OSK forecast
EPS	3.9	2.3		3.9	4.1
DPS	2.0	2.0		2.0	0.0
EBIT margin	17.5	13.9		17.5	20.9

EARNINGS FORECAST

FYE June (RM m)	FY10	FY11	FY12	FY13f	FY14f
Turnover	518.8	568.5	723.4	805.1	928.3
EBITDA	109.2	128.5	152.6	169.1	194.9
PBT	86.3	105.1	130.6	137.0	159.3
Net Profit	61.0	75.7	96.0	101.4	117.9
EPS	9.0	11.2	14.2	15.0	17.4
DPS	3.0	4.0	6.0	8.0	10.0
Margin
EBITDA (%)	21.0	22.6	21.1	21.0	21.0
PBT (%)	16.6	18.5	18.1	17.0	17.2
Net Profit (%)	11.8	13.3	13.3	12.6	12.7
ROE (%)	26.0	26.8	28.2	26.2	27.0
ROA (%)	17.1	17.0	19.9	17.9	18.5
Balance Sheet
Fixed Assets	92.3	94.6	102.0	100.6	95.1
Current Assets	264.3	349.8	380.3	464.7	543.8
Total Assets	356.6	444.4	482.3	565.3	638.8
Current Liabilities	111.4	138.0	120.4	155.8	174.2
Net Current Assets	153.0	211.8	259.9	308.9	369.5
LT Liabilities	10.9	23.7	21.8	22.2	27.2
Shareholders Funds	234.3	282.7	340.1	387.2	437.4
Net Gearing (%)	Net cash	Net cash	Net cash	Net cash	Net cash

 Source: OSK