Target Price: MYR1.95
A Better Year Ahead
Padini’s FY13 results were in line with consensus and our estimates. Revenue grew by 8.8% y-o-y but earnings dipped by 10.4% due to: i) lower gross profit margin as consumer preference shifted to products with lower mark-ups, and ii) higher operating expenses from new stores openings. We like the group’s aggressive outlet expansion plans and decent dividends. Upgrade to BUY, with an unchanged FV of MYR1.95.
• Within expectation. FY13 revenue increased by 8.8% y-o-y to MYR789.8m, from MYR726.1m, mainly attributable to new store openings. However, its net profit declined by 10.4% y-o-y to MYR85.4m (from MYR95.3m) as higher cost of sales (+12.3% y-o-y) and higher operating expenses (+13.8% y-o-y) to set up the new stores offset the stronger sales generated. Vis-à-vis 3Q13, 4Q13 turnover and earnings were lower by 13.2% and 36.7% q-o-q respectively as 3Q’s performance was boosted by Chinese New Year sales.
• Margins under pressure. Gross profit margin weakened by 1.7ppt to 46.7% y-o-y, no thanks to the higher cost of goods as customers switched to more value-for-money items. Likewise, FY13 EBIT margin slipped by 3.1ppt y-o-y to 15.1% due to higher operating costs from new store openings.
• 7 outlets coming on board. The momentum of new store openings will resume in 1HFY14, with seven new outlets in the pipeline. Padini also declared a 2.5 sen DPS first interim dividend for FY14, on track to meet our forecast of 10 sen DPS for the full-year.
• Forecasts. We are keeping our forecasts given the in line results. Key investment risks include the entry of new retailers into the market and slower consumer spending.
• Upgrade to BUY. We are optimistic on the outlook of Padini due to its solid fundamentals and on-track outlet expansion. Our FV of MYR1.95 is based on 14x FY14 EPS. The stock is currently trading at a low forward P/E of 12x compared to its historical 15x P/E. Given its lucrative dividend yield of 6% and undemanding valuation, we upgrade our call to BUY.
Publish date: 30/08/13