Padini: Earnings Plunged

Result Update

In QE30/9/2018, Padini's net profit dropped 69% q-o-q or 42% y-o-y to RM18 million while revenue was mixed- down 31% q-o-q but rose 5% y-o-y to RM330 million. Revenues and profit before taxation for this quarter decreased by approximately RM148 million (31.0%) and RM54 million (66.9%) respectively compared to the immediate preceding period. This was mainly due to Hari Raya festival sales which fall in June 2018 and the nationwide 4 days special sales promotion held in the last quarter.


Table 1: Padini's 8 quarterly results

The Hari Raya festival sales and the nationwide 4 days special sales promotion must have been so successful as it came after the ending of GST in Malaysia in June. The following quarter, QE30/9/2018 has traditionally been a slower quarter, and it did not benefit from the tax-free period after the end of GST and before the start of SST in September. It could be a reflection of the slowdown in consumer spending.

Below I have compared the decline in revenue and profits for QE30/9/2018 with those of QE30/9/2018. While revenue dropped q-o-q buy rose y-o-y for both periods under review, profits dropped more severely for QE30/9/2018 compared to QE30/8/2017. The reason for the bigger drop in profits are attributable to:

a) a drop in gross profit margin from 43% to 40%, which was mainly due to the reversal of inventories written off and inventories written down in the previous financial year, and
b) an increase in staff cost, rental and some other store operating expenses.

Table 2: Padini's QE30/9/2018 compared to QE30/9/2017 


Graph: Padini's P&L  for last 25 quarterly results

Financial Position

Padini's financial position is deemed satisfactory as at Sept 30, 2018 with current ratio at 3.7x and gearing ratio at 0.3x. Net cash balance was RM314 million or RM0.48 per share.

Valuation

Padini (closed at RM4.30 in the morning session) is now trading at a trailing PER of 17x (based on last 4 quarters' EPS of 25 sen). Excluding the net cash of RM0.48 per share, Padini's PER would improve slightly to 15x. At either one of these PERs, Padini is fairly attractive.

Technical Outlook

Padini broke its horizontal line at RM5.30 as well as the psychological RM5.00 mark on November 30. Its immediate support is at the horizontal line at RM4.10-4.15. If this support is broken, Padini may test its uptrend line at RM3.70.

Chart: Padini's weekly chart as at Dec 4, 2018_11.30 (Source: Malaysiastock.biz)

Conclusion

Despite the sharp drop in profits, Padini is still a good stock to buy for long-term investment based on its steady & well-established track record of financial performance and healthy financial position.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.