Padini Holdings Berhad - 2Q13 results below expectations

Period  2Q13/1H13

Actual vs. Expectations  The 2Q13 net profit of RM19.4m brought the 1H13 net profit to RM44.9m. This was below expectations, making up 42.7% and 41.6% of the street's FY13E NP of RM105.2m and our RM107.9m respectively.

Dividends  As per our expectations, a single tier dividend of 2.0 sen was declared for the quarter.

Key Result Highlights  QoQ, the 2Q13 revenue increased by RM6.6m or 3.3% to RM207.7m as a result of the increased retail activity brought by the Christmas season. Net profit, however, declined by 25.1% at RM19.4 as this was caused primarily by accruing part of the employee's bonuses which the group was committed to paying in January 2013.

 YoY, the 2Q13 revenue registered a marginal growth of 2.6% but despite that, net profit declined by 32.2%. The fall in net profits earned was due to 1) a gross margin contraction of 3.4ppt (from 49.0% to 45.5%) as the result of an increased preference among consumers for the lower margin value-for-money range of products. 2) A 10.6% increase in operating expenses following a net addition of 107,104 sq ft of retail space YoY.

 1H13, the 1H13 revenue increased by 7.4% YoY, Meanwhile, the 1H13 NP lost 19.1% from (RM55.5m to RM44.9).

Outlook  We are cautious on Padini's outlook, underpinned by the rising threat from domestic and international players entering the fray.

 The increased discount and promotional activities to remain competitive would also have a bearing on the group's margins.

Change to Forecasts  We maintain our FY13-FY14E earnings estimates at this juncture. However, we recognise the potential headwinds highlighted above and as such, we have a downward bias on our forecasts, pending our meeting with Padini's management.

Rating   Maintain MARKET PERFORM

Valuation  Maintaining our TP of RM1.84. Our TP is based on an unchanged Fwd PER of 11.2x (+1.5 Standard deviation above the 5-year Average PER) over FY13 EPS of 16.4 sen.

Risks  Uncertainties surrounding the impending general elections may adversely impact domestic consumer sentiment, and hence the general willingness to spend.

Source: Kenanga