PADINI – Fundamental Analysis (9 Mar 2016)

Fundamental Analysis as of FY15 – http://www.slideshare.net/lcchong76/padini-fundamental-analysis-fy15

Excel – http://1drv.ms/1R6PmVt

Latest Financial – Q2 2016 Financial Report (23 Feb 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/5006357

Peer Comparison – http://www.slideshare.net/lcchong76/apparels-peer-comparison

FY16 Q2 Results Highlight:

  • PADINI’s continued expansion of its distribution network with a focus on second or even third tier urban centres has seen a total of 13 Padini Concept Stores and Brands Outlet stores opened between Q4FY15 and Q2FY16.
  • The company enjoys a more streamlined store base with a lower concentration of concession stores in favour of more profitable freestanding stores.
  • PADINI managed to drive revenues significantly higher for Q2FY16 to RM340.4 million, representing a year-on-year increase of nearly 38.6% (RM94.8million). 2QFY16 net profit was MYR33.1m (+104.0% YoY, +3.9% QoQ), taking 1HFY16 net profit to MYR64.9m (+83.1% YoY). 2QFY16’s stronger YoY bottomline was mainly driven by:
    • Christmas season shopping
    • Additional contributions from new outlets
    • Aggressive promotions (i.e. 4-day special sales)
    • Wider selection of merchandise with attractive pricing
  • Against increase in revenues, operating expenses rose only a relatively low 17.8%.
  • Since gross margins achieved in the two quarters compared had remained nearly the same, the substantial increase in top-lines and the slower expenses growth had caused the profit before tax for the quarter to soar by a hefty 84.6% to RM44.5million, from the RM24.1million recorded in the same quarter a year ago.

Valuation:

PADINI-FY16Q2-Football-Field

In my opinion, fair value of PADINI range from 2.4 to 2.7. Uncertainty risk of fair value is from LOW to MEDIUM.

Going Forward:

For FY16, Padini has so far opened 9 outlets (3 Padini Concept Stores + 6 Brands Outlet stores; since July 2015) with another 5 more outlets to be opened in 2HFY16. Elsewhere, earnings in 3QFY16 is estimated to be comparable with 2QFY16’s due to the Chinese New Year festive buying in 3QFY16 but earnings would subsequently ease off in 4QFY16 as the quarter’s sales have always been seasonally slower.

In my opinion, PADINI’s current valuation is still attractive. Its high dividend yield help cushion market dips. I still cautious on Padini’s near-term earnings outlook due to risks of lower margins and profits from absorbing the GST amid the weakening consumer sentiments. I will continue to hold and accumulate this stock.

At the time of writing, I owned shares of PADINI.

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