KLCI : 1,797.97
Price Target : 12-Month RM 1.75
A good start
1QFY14 net profit of RM28m is in line
Earnings lifted by increase in exports and stronger revenue from Brands Outlet stores
Declared second interim and special net DPS of 2.5 and 1.5 sen
Maintain Hold at RM1.75 TP
1QFY14 in line. Padini’s 1QFY14 net profit rose 10% y-o-y to RM27.7m, mainly driven by increase in exports and stronger revenue from its Brands Outlet stores. The quarter’s earnings represent 30% of our full-year estimate. This is within expectations. We expect softer profit during 4Q14.
1Q14 revenue grew 8% y-o-y and 23% q-o-q, mainly lifted by the Hari Raya and Merdeka Day promotions. With the better sales volume, Group EBIT margins improved to 18.2% (vs. 1Q13: 17.4%).
Declared special dividend. Padini declared its second interim net DPS of 2.5 sen together with a special net DPS of 1.5 sen which is above our expectations. YTD, the Group has declared DPS of 6.5 sen (3.9% net yield).
Higher dividends could be supported by its strong net cash position which stands at RM0.27/share as of end-1QFY14 (vs. previous quarter at RM0.26/share).
More stores ahead. Padini is scheduled to open three Brands Outlet stores and two Padini Concept Stores over the next few months. Although this will lead to higher operating costs in the near term, the new store openings will support medium to longer term earnings growth.
Maintain HOLD. We maintain our Hold recommendation and RM1.75 TP pegged to 12x CY14 EPS. Valuation is still fair at 11x CY14 PE, while downside is supported by CY14 net yield of 5.4% and ROE of 24%.