• 1QFY16 net profit of MYR32m (+65% YoY) above expectations, mainly driven by higher sales volume.
• Raise FY16-18 EPS by 36-44% premised on stronger revenue and better margins.
• Upgrade to BUY with a higher TP of MYR1.90 (+60sen); offers favourable net yield of 6.3%.

What’s New

1QFY16 net profit was MYR31.8m (+65% YoY, +75% QoQ), 38%/34% of our/consensus’ full-year estimates – above expectations. While the earnings were supported by strong revenue growth of 19% YoY, this is not reflective of a rebound in consumer sentiment, but rather to (i) the success of more aggressive promotional efforts, especially bundled offers, at Padini Concept Stores (PCS); and (ii) additional contribution from new outlets whereby Padini has opened four PCS and four Brands Outlet (BO) stores post-1QFY15. Same-store sales growth (SSSG) for PCS was an impressive 23% and positively, Vincci is showing signs of a turnaround and improvement in sales. We understand that the SSSG for BO, however, was just about 4%, reflecting the overall weak consumer sentiment, particularly among the lower income group. Padini has declared a second interim net DPU of 2.5sen, within our expectations.

What’s Our View

We raise FY16/17/18 EPS forecasts by 44%/40%/36% following our forecast adjustments on higher revenues and better margins. We expect near-term earnings growth to be supported by existing and new outlets whereby Padini plans to open 7 PCS and 9 BOs in FY16. Elsewhere, balance sheet has remained healthy with a net cash of MYR175.0m (MYR0.26/share) as at end-Sep 2015.

We roll forward our PER valuation base year to CY16 (from FY16) and raise our TP to MYR1.90 which is pegged to unchanged 10x PER (at 1-year forward PER mean). Upgrade to BUY as the stock offers 19% potential upside with a favourable 6.3% net yield.

Source: Maybank Research - 27 Nov 2015