Not the time to shop yet - Padini coverage

by **Cals** Wed 10 Jul 2013, 10:00

Not the time to shop yet
Business & Markets 2013
Written by Maybank IB Research
Wednesday, 10 July 2013 09:47

[b style="line-height: 18px;"]PADINI HOLDINGS BHD [] [/b]
(June 9, RM1.89)
Maintain sell at RM1.85 with a revised target price of RM1.75 (from RM1.80): Padini's share price has retreated from its peak of RM2.17, but we believe a better opportunity would be to accumulate the shares after the upcoming results for the fourth quarter of financial year 2013 ended June (4QFY13, typically announced towards end-August), which we expect to be weaker year-on-year (y-o-y). Our net profit forecasts for FY13 are adjusted by -6%, FY14 by -3% and FY15 by +2%. Maintain “sell" with a marginally lower target price of RM1.75 (-5 sen), based on 12 times FY14 price-earnings ratio (PER, unchanged).

The upcoming 4Q results will likely be weak due to the absence of festivals in the quarter as well as cautious sentiment ahead of the general election on May 5. Shopping had apparently slowed down before the electio on as voters were busy attending campaign rallies and has not recovered much after the election. On that note, we have trimmed our FY13 net profit forecast to RM80.8 million (from RM85.8 million), expecting the group to report a subdued net profit of RM11.1 million for 4Q (-26% y-o-y).

The group will open seven large stores in the first half (1H) of FY14, comprising three Padini Concept Stores (+50,000 sq ft) in Penang, Miri and Seremban and four Brands Outlets (+40,000 sq ft) in Penang, Miri, Seremban and Langkawi. There could be a few more new outlets in 2HFY14, depending on the completion of upcoming retail space in Sunway Velocity, Sunway Putra Place and so on. We increase our new retail space assumption to 110,000 sq ft (80,000 sq ft previously).

At the end of its tenancy agreement in December 2014, Padini will close down its stores in Gurney Plaza, George Town, given the close proximity and cheaper rentals in Gurney Paragon, which is to open in July 2013. We are neutral on this as it depends on Gurney Paragon's ability to attract footfall from Gurney Plaza.

We expect a 10 sen dividend per share (2.5 sen per quarter) for FY14, which translates to a 69% net profit payout. Dividend yields of 4% to 5% may provide some support to the share price, but PER valuations at this stage (12 times 2014 calendar year) are already more than a standard deviation above the mean of 10.7 times. — Maybank IB Research, July 9

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This article first appeared in The Edge Financial Daily, on July 10, 2013.