PADINI – Fundamental Analysis (21 Jun 2016)

Excel – Download the analysis file

Latest Financial – Q3 2016 Financial Report (18 May 2016)

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

TA Securities released a very comprehensive coverage of PADINI on 20 Jun 2016.

FY16 Q3 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 in 9MFY16.
  • 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 Q3FY16 to RM342.4 million, representing a year-on-year increase of nearly 20.7% (RM283.6million). 3QFY16 net profit was RM35.1m (+32.1% YoY, +6.2% QoQ), taking 9MFY16 net profit to MYR100.0m (+61.2% YoY). 3QFY16’s stronger YoY bottomline was mainly driven by:
    • CNY 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 8.4% YoY.

Valuation:

PADINI-FY16Q3-Football-Field

In my opinion, fair value of PADINI range from 2.7 to 2.9. Uncertainty risk of fair value is from MEDIUM to LOW.

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 great economic pressure. I will continue to hold and accumulate this stock.

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

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