Hold (from Sell)
Share price: MYR1.66
Target price: MYR1.75 (unchanged)
Attractive Dividend Yields
FY6/13 better than expected. Padini’s 4QFY6/13 net profit of MYR16m was above our expectation but in line with consensus. FY6/13 full-year net profit of MYR85m (-10% YoY) came in at 106% of our fullyear forecast. The primary concern at this stage is the weakness in consumer spending, hence we maintain our FY6/14-15 earnings forecasts. Nevertheless, Padini’s share price is supported by its net dividend yields of 6% p.a.. We upgrade Padini to HOLD with an unchanged TP of MYR1.75, pegged to 12x FY6/14 PER.
A setback after many years of growth. 4QFY6/14 net profit rose just 1% YoY to MYR16m as shopping activities tapered off before the 13th General Election. Consumers were more cautious in spending and some were involved in the election campaign rallies nationwide. FY6/13 group net profit dropped 10% YoY to MYR85m despite revenue growth of 9% YoY. Gross profit margin contracted 1.7ppts due to markdowns and the preference shift towards its cheaper apparel at Brands Outlet.
New stores in 1HFY6/14 include three Padini Concept Stores (PCS) in Miri, Seremban and Penang as well as four Brands Outlets (BO) in Miri, Seremban, Penang and Langkawi. These stores will add c. 90,000 sq ft to the group’s existing retail space of 720,000 sq ft as at end-June 2013. Among these, PCS and BO in Gurney Paragon, Penang were already opened on 23 July.
Cautious on slower discretionary spending. This recent results season has pointed to a weaker operating environment for some of the consumer stocks in our coverage, with evidence of slower growth in consumer discretionary spending in 1H13. Besides, we understand that Padini has gradually lowered the price range for its merchandise in PCS over the past few months.
Dividend to support share price. The proposed single tier final DPS of 2.5sen for FY6/13 is within our expectation. We keep our 10sen DPS forecast for FY6/14, which implies a net yield of 6%.
Publish date: 29/08/13