Padini may continue with its prior uptrend

Technical Breakout

Padini broke above its horizontal resistance at RM1.90 yesterday and closed at RM1.97. Padini, a trending stock, had been in an intermediate downtrend since September 2012. In late January this year, Padini broke above the downtrend line at RM1.80 and had been moving in sideway in a range between RM1.77 & RM1.90  The upside breakout above the range could signal the continuation of the long-term uptrend. For more, see the two charts below.


Chart 1: Padini's daily chart as at Mar 13, 2013 (Source: Quickcharts)


Chart 2: Padini's weekly chart as at Mar 13, 2013 (Source: Tradesignum)

Recent Financial Results

It must been noted that Padini's financial performance for 1H2013 declined compared to last year. Its revenue increased from RM381 million to RM409 million while net profit dropped from RM56 million to RM45 million.

For QE31/12/2012, revenue increased by 2.6% as a results of a 17.7%- expansion in floor area (or an increase of 107,104 square feet). The increased floor area led to 10.6%-increase in operating expenses (for QE31/12/2012). At the same time, the company experienced a contraction of 3.4% in the gross profit margins in 1H2013 due mainly to an increased preference among consumers for the more affordable range of the Group’s merchandise whose mark-ups are lower. The lower gross profit margin & higher operating expenses resulted in a decline in the bottom-line for Padini. For more, go here.

Valuation

Padini (closed at RM1.97 yesterday) is now trading at a PE of 14.5 times its annualized FY2013 EPS of 13.7 sen. At this PE, Padini is deemed fairly valued. The upside will however come from improved gross profit margin as well as increased sales per unit area.

Conclusion

Based on technical breakout, Padini could be a good trading BUY. Immediate resistance is at RM2.00 & then at the recent high of RM2.30.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Padini.