KUALA LUMPUR: AmInvestment Research upgraded its recommendation on Padini Holdings Bhd
to hold from sell following its meeting with management.
Its fair value remains RM4.52 a share based on price-earnings of 15x pegged to FY19F.
The research house said Padini's management does not see Cambodia as an immediate catalyst to growth but a supplementary export growth market in the longer term.
However, in line with its five-year revenue mix goal, Padini is looking to enter a new regional export market by end-2019, said the research house.
It added that the likely possibilities included Mynamar, Laos and Vietnam.
The research house said that while Retail Group Malaysia expects Malaysia 2018 retail sector to grow 4.7%, Padini's management has a more conservative projection.
"We believe domestic revenue growth will be driven by sustained store
expansions in the range of 10-15 stores per annum going forward.
"FY18 is expected to see the addition of 12 stores (6 Brands Outlet and 6 Padini Concept Stores). While we understand for store additions to be within tier-1 cities, it will be at a lower proportion of Klang Valley stores which could prove dilutive."
AmInvestment Research said festive-related spending will be recognised in 3QFY18 as opposed to 2QFY18 due to a mismatch in timing.
"We expect a more robust topline and subsequently higher gross margins tied to improved product mix heading into 3QFY18.
"We expect gross margins to improve against 2QFY18’s 39.2%. Management expects normalised margins to typically fall in the range of 38-42%. A 1ppt deviation from our FY18F gross margin assumption of 40.6% will result in a 7.3% impact to earnings."
Limited time offer:
Just RM5 per month.
