Padini Holdings Bhd
(June 8, RM1.37)
Maintain hold with a higher target price (TP) of RM1.43 from RM1.38 previously: Our recent meeting with Padini Holding’s (Padini) management affirmed our view that the quarter ending June would be challenging for the group, and earnings could miss expectations. 

We believe fourth quarter of financial year 2015 (4QFY15) earnings may come in below RM14 million while consensus estimate is RM17 million.

Weak consumer sentiment post goods and services tax (GST) implementation in April is the key factor dragging earnings, and the group has to fully absorb the 6% GST in the near term, which reduces profit margins.

We cut FY15 to FY17 earnings after adjusting for the expectations of lower 4QFY15 earnings than earlier estimated and weaker gross margins for FY16 to FY17 as the group would have to absorb part of the GST due to rising competition.

Our revised earnings indicate the group would only make RM4 million profit in 4QFY15, which is significantly below consensus earnings forecast.

Despite cutting earnings, we raised the TP as we rolled forward our price-earnings ratio (PER) valuation window to calendar year 2015.

The target PER multiple is unchanged at 12 times. The share price will continue to be supported by attractive dividend yields of 7% to 8%. — AllianceDBS Research, June 8

This article first appeared in The Edge Financial Daily, on June 9, 2015.