Padini on track to pay full-year dividend of 11.5 sen

by **Cals** Wed 07 May 2014, 22:54

Business & Markets 2014

Written by MIDF Research

Wednesday, 07 May 2014 10:25

Padini Holdings Bhd
(May 6, RM1.97)
Maintain buy with target price of RM2.26: To recap, Padini’s Brands Outlet (BO) stores recorded commendable same store sales (SSS) growth of more than 30% year-on-year (y-o-y) for the second quarter ended Dec 31 of financial year 2014 (2QFY14). Moving forward, management indicated that it will focus on expanding its BO stores (24 to date) as Padini’s other stores are expected to have relatively flat growth.

We believe that greater revenue contribution from BO stores will be able to boost Padini’s current overall level of top line growth.

BO stores’ generic brand offerings provide Padini with greater flexibility in controlling its product mix in order to cater to the requirements of consumers in different locations. It also enables Padini to maintain its margin.

Management also indicated that Padini is keen to further expand its network outside the Klang Valley via BO stores. We are positive on this as it will enable Padini to further penetrate the value-for-money segment in Malaysia to further boost its earnings potential.

Padini has paid total dividend of nine sen per share to date for FY14 and is well on track to pay a full-year dividend of 11.5 sen for a net dividend yield of 5.8% at the current price. We are expecting the company to continue to maintain its dividend payout (62% in FY13) as the company is laden with cash of RM212.9 million or 32 sen per share.

So far four BO stores and two Padini Concept Stores (PCS) were opened in FY14. Another three BO stores and one PCS are expected to be opened by June 2014. Management further guided that store expansion will continue in FY15.

We are revising upwards our 2014 and 2015 earnings per share (EPS) by 4% and 7% respectively to reflect better earnings expectations fuelled by better revenue from the opening of the new stores.

We also believe that Padini’s business proposition for BO stores will continue to bode well with the mass market in the current economic environment beset with rising cost of living.

We reaffirm our “buy” recommendation with a revised target price of RM2.26, pegging Padini’s FY15 EPS of 17 sen to FY15 price-earnings ratio (PER) of 13.3 times, which is based on the stock’s average rolling four-quarter PER over two years.

We continue to like Padini due to: (i) its attractive dividend yield; (ii) its commendable revenue growth backed by its aggressive expansion; (iii) the presence of BO stores in the value-for-money segment which we believe will cater to mass market needs in the current economic environment; and (iv) its experienced management team with strong local retail market knowledge. — MIDF Research, May 6

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This article first appeared in The Edge Financial Daily, on May 7, 2014.[/color][/size]