Malaysia Company Guide Padini Holdings Version 8 | Bloomberg: PAD MK | Reuters: PDNI.KL Refer to important disclosures at the end of this report DBS Group Research . Equity 21 Feb 2017 Fashions with value, upgrade to BUY (Upgrade from hold) BUY Last Traded Price ( 20 Feb 2017): RM2.58 (KLCI : 1,712.58) Value emerged, upgrade to BUY. While we remain cautious that Price Target 12-mth: RM2.95 (14% upside) Padini Holdings’ (Padini) profit margin could come under Potential Catalyst: Stronger-than-expected topline growth pressure in 2HFY17 due to the weak ringgit, we upgrade our Where we differ: In line with consensus recommendation for Padini to BUY, given that value has Analyst emerged following its share price retracement by about 10% King Yoong CHEAH +60 32604 3908
[email protected] since our recent downgrade. What’s New Earnings came within expectations Strong quarter, within ours but above street expectations. The group reported strong 2QFY17 earnings of RM54m (65% y-o-y), GP margin could come under pressure in the driven by (1) 25% growth in revenue, and (2) higher GP margin coming quarters of 42% (vs 40% in 2QFY16) due to less product markdown during its special 4-day nationwide special sales. Its earnings But value has emerged due to share retracement accounted for 52%/57% of our/consensus full-year earnings forecasts. Upgrade to BUY with TP of RM2.95 GP margin could come under pressure due to weak ringgit. The group sources about 80-90% of its products from China, Price Relative through its sourcing agents. Although we understand that the correlations between currency movement and its GP margin is not so direct given that its sourcing agents could opt to absorb the currency difference, we maintain our view that margins could come under pressure in the 2HFY17 due to the persistent ringgit weakness since Nov 2016.