This article first appeared in The Edge Financial Daily, on February 12, 2016.

Padini Holdings Bhd
(Feb 11, RM2.10)
Reiterate hold with a higher target price (TP) of RM2: We understand that Padini Holdings Bhd’s Padini Concept Store (PCS) and Brands Outlet (BO) stores’ strong year-on-year (y-o-y) sales growth rates have continued in the second quarter ended Dec 31, 2015 (2QFY16), driven primarily by Padini’s aggressive promotional efforts namely in PCS with bundle offers.

Compared to 1QFY16, we remain upbeat on Padini’s 2QFY16 and 3QFY16 sales, which are seasonally stronger due to festive shopping. Our FY16/FY17/FY18 earnings forecasts with earning per share growth of 50%/10%/3% y-o-y have incorporated Padini’s near-term earnings catalysts.

On its expansion plans, Padini plans to open 13 new outlets in FY16 (five PCS and eight BOs). This differs from its previous guidance of 16 new outlets due to expected opening delays of Sunway Velocity and Empire City Mall.

With three PCS and six BOs opened since July 2015, Padini is expected to launch four more outlets in the second half of FY16  — Aeon Mall Shah Alam (two outlets) and Aeon Mall Kota Baru (two outlets). We have imputed just 11 new outlets in our FY16 forecast.

We believe the current valuation of 10.9 times 2016 price-earnings ratio (PER) is fair and Padini’s near-term earnings growth catalysts have been largely priced in.

Padini is currently trading at plus one standard deviation its 10-year forward PER mean.

We raise our TP to RM2, pegged to a slightly higher 10.5 times forward PER mean, which has rerated from the previous 10 times.

Its share price is supported by its 10 sen net dividend per share per annum, which offers a decent 4.8% net yield.— Maybank Investment Bank Research, Feb 11