February 22, 2017 : 9:27 AM MYT
PADINI (7052) - Padini trending higher
KUALA LUMPUR: Padini Holdings Bhd’s record high half-year profit for the period ended Dec 31, 2016 that beat expectations has prompted analysts reiterating their “buy” recommendation on the stock.
Padini’s share price made a big leap yesterday, hitting an intraday high of RM2.83. It retreated later to close at RM2.72, up 14 sen or 5.3% yesterday — the highest closing since late November last year.
The strong 64.7% growth in net profit for the second financial quarter ended Dec 31, 2016 and an expectation of the cash-rich retailer would probably declare a special dividend have attracted buying interest in the stock, despite the general perception of cautious consumer spending moving forward.
“It is above our estimates by 4% and in line with [the] consensus. An interim dividend of 2.5 sen per share was also announced, bringing the year-to-date dividend per share to five sen as expected,” said AmInvestment Bank analyst Philip Wong.
TA Securities, which has the highest target price of RM4, commented that Padini achieved a record-breaking core profit of RM83 million in the first half of the financial year ending June 30, 2017 (1HFY17), mainly due to improvements in same-store sales growth (SSSG) and maiden contributions from five new Padini Concept Stores and eight Brands Outlet, which opened in early 2016.
Wong added that Padini’s ability to grow in-store sales while offering lower rebates despite soft consumer spending and stiff competition from other fashion retailers is impressive.
“This new development mitigates our earlier concerns over higher input costs compressing margins as average selling prices are expected to remain unchanged for FY17.
“In view of the better-than-expected 2QFY17 results, we have raised our SSSG assumption to 7% from 3%. We also updated our assumption of store additions for FY17 to 15 stores from eight stores, as per [the] management’s guidance.
“We upgrade our recommendation to ‘buy’ from ‘hold’ on Padini Holdings as we raise our fair value to RM3.18 per share versus RM2.87 previously.”
AllianceDBS Research analyst Cheah King Yoong points out the improved earnings is also attributed to the wider gross profit margin of 42% versus 40% in 2QFY16, due to less product markdowns during its special four-day nationwide sales.
Further, Cheah said the group may also declare a special dividend of 1.5 sen per share if the earnings growth momentum is sustained, giving an attractive yield of 4.5% (or 3.9% without special dividend).
AlllianceDBS Research upgraded the stock to “buy” recommendation with an unchanged target price of RM2.95, partly due to an expectation of a special dividend in the pipeline.
Moving forward, despite a weakening ringgit and the challenging economic situation, TA Securities opines that Padini is less impacted when it focuses on the value-for-money segment with its Brands Outlet approach.
“Overall, with [its] strong brand name, continuous expansion in new stores and recovery in the consumer sentiment, we believe that Padini will be able to deliver strong results in FY17,” said TA Securities.
PADINI (7052) - Padini trending higher
http://www.theedgemarkets.com/my/article/padini-trending-higher
