Padini Holdings Bhd
(Aug 19, RM2.87)
Downgrade to hold from buy with a higher target price (TP) of RM2.60 from RM2.55 previously: We downgrade our recommendation for Padini Holdings Bhd to “hold” and take a more cautious stance on the stock given that the recent run-up of the stock was partially driven by a potential active capital management exercise, which we believe is still too early to speculate on at this juncture. We believe that Padini’s current valuation has priced in its near-term growth prospects. As such, we view the stock to be fairly valued at this juncture.

Although management does not discount the possibility of special dividends in the coming years, and the group has strong financials to do so, we understand that it is too early to speculate on Padini engaging in an active capital management exercise at this stage.

As such, we are keeping our dividend forecasts at 10 sen per share for financial year 2017 (FY17) and FY18.

The stock has performed remarkably well, with its share price rising more than 100% since our upgrade about a year ago. Following the strong rally, the stock has exceeded our TP of RM2.60.

We continue to like Padini, given its solid fundamentals and hands-on management, but we believe that the group’s current valuation has priced in its near-term growth prospects.

We tweak our TP to RM2.60 from RM2.55 upon rolling forward our 12-month valuation basis to third quarter of calendar year 2017.

Key risks to our view include weaker-than-expected consumer spending and an increasingly competitive industry landscape. — AllianceDBS Research, Aug 19