AmWatch -Padini Holdings : Undemanding valuation; committed to dividend policy BUY, 10 Feb 2015

STOCK FOCUS OF THE DAY

Padini Holdings : Undemanding valuation; committed to dividend policy                BUY

We upgrade Padini Holdings to BUY from HOLD with a revised fair value of RM1.70/share, pegged to an FY15F PE of 13x, following a company visit. Padini’s share price has fallen significantly by 40% in the past six months on the back of:- (1) softening consumer sentiment; and (2) margin compression arising from aggressive promotional activities to clear inventories prior to the implementation of GST.

Nevertheless, our upgrade is premised on:- (1) Padini’s resilient business model, which is well positioned to capitalise on the upturn in the economy given its sizeable distribution network and continuous brand building phase, despite weaker consumer spend in the near term; (2) slower SSSG contraction in relative to its peers’ given its established brand equity and affordable price structure. We expect SSSG to remain flat in FY15F; (3) its generous dividend policy (dividend yield of 7%) provides support to share price. Management affirmed its commitment to pay 2.5sen dividend each quarter; and (4) undemanding FY15F valuations of 11x PE at the current level, which is below 3-year historical mean of 13x.

The strategic shift to focus on Brands Outlet has mitigated the muted performances of its other brands (i.e. Vincci and Miki) – nearly half of earnings growth now comes from Brands Outlet, which will underpin earnings growth moving forward. Earnings could hit a soft patch in 4QFY15F as we expect sales to slow down before picking up in 1Q/2QFY16F amidst uncertainties in the GST rollout. Cognisant of this, management will continue its bundle promotions to support sales volume ahead. Store expansion would nonetheless continue – five new stores are earmarked to open by end-FY15F. This is supported by its net cash position of RM84mil as at end-1QFY15.

Others :

Dialog Group : Steady earnings growth underpinned by sound execution              BUY

Digi.Com : Priced to perfection  HOLD

QUICK TAKE

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DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.