Padini’s same-store sales growth to remain flat at best

Business & Markets 2013
Written by theedgemalaysia.com
Friday, 26 April 2013 10:13
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PADINI HOLDINGS BHD []
(April 25, RM1.80)
Maintain hold at RM1.84 with a fair value of RM1.71: We reaffirm
our “hold” recommendation on Padini with an unchanged fair value of
RM1.71 per share. This is based on our discounted cash flow valuation
as we roll forward our base year to the financial year ending June 2014
(FY14F).
We have again trimmed our FY13F to FY15F earnings, by 16% to 21%
to reflect: (i) lower same-store sales growth (SSSG) for FY13F of 0%,
FY14F, 5%, and FY15F, 8%, against FY12’s 14%; and (ii) compression
in gross profit margin to 45%.
Earnings momentum in the near term is expected to weaken, off its
large base in FY12. This is predominantly due to the softening of retail
spend and price competition. The results for the third quarter (3Q) are
scheduled for release end-May.
The cautious consumer sentiment ahead of the election partly
dampened first half (1H) FY13 SSSG, which contracted by 8.8%. We
believe the contraction in SSSG has yet to bottom out. SSSG is
envisaged to recover in FY14F, underpinned by an improved retail sales
sentiment, post the general election.
More importantly, a shift in consumer shopping patterns towards valuefor-
money or discounted merchandise negatively impacted margins.
Gross profit margin compressed to 46% in 1HFY13 from 49% in
1HFY12, dragged down by heavy promotions and discounting.
Coupled with the recent influx of international brands, the latest addition being H&M, price competition has intensified. Amid
the backdrop of a challenging retailers’ outlook, ongoing initiatives to expand the variety of mark-up merchandise are now part
of Padini’s strategy to drive sales.
On the flipside, Brands Outlet provides good support to the consumer shift in spending pattern. In line with the group’s focus
to penetrate the middle- to lower-end market through Brands Outlet, expansion will continue with three outlets indentified for
FY14F.
Looking ahead, store expansion resumes in FY14F with six in the pipeline (three Concept Store, three Brands Outlet) for Miri,
Penang and Seremban. Store refurbishments are the focus in FY13, with only one store opening due to scarcity of floor
space in existing malls.
Padini remains as a yield play of more than 4%, despite its earnings risks, which have been priced in by the market, in our
view. Dividends are expected to go up by two sen (25%) to 10 sen in FY14F against FY13F’s eight sen. This is supported by
a steady cash buffer of RM187 million and a healthy balance sheet.
The stock is currently trading at 16 times FY14F price-earnings ratio (PER), slightly above its historical five-year peak of 15
times. Its closest competitor Bonia Corp Bhd (not rated) is trading at eight times PER. — AmResearch, April 25