KUALA LUMPUR (Aug 11): Padini Holdings Bhd shares edged up in early trade today after AllianceDBS Research upgraded the stok to “Buy” and raised its target price for the stock.

At 9.25am, Padini gained 0.74% or one sen to RM1.37 with 16,900 shares done.

AllianceDBS Research upgraded Padini to “buy” (from "hold") at RM1.36 with a higher target price of RM1.50 (from RM1.43) after rolling over its valuation base to FY16F.

In a note today, AllianceDBS vice president for equity Cheah King Yoong said given that the group (1) was currently trading near its year low, (2) has a strong balance sheet, (3) profit margin is nearing bottom, and (4) offers attractive dividend yield of more than 7%, he believes the negatives had been priced in, and the stock deserves a second look for investors positioning to capitalise on the recovery in consumer spending in Malaysia.

Cheah said Padini was poised to report 4QFY15 results on August 18.

“We are estimating only RM4 million net profit for the quarter, which is significantly below consensus forecast of RM16 million.

“Nonetheless, we would look beyond that since the weak 4Q results were because the group absorbed the 6% GST rate, which reduced 4QFY16 GP margin to 39%. We understand the group will pass on some of the GST and margins should recover going forward,” he said.

Cheah added Padini was planning to open 12 outlets in FY16, which could drive earnings growth even if margins fail to recover, since it would help the group to penetrate new markets. We are also positive that its value for money brand, ‘Brands Outlet’ could benefit from downtrading.

“Management is committed to pay out minimum 10 sen DPS, which implies attractive yield of more than 7%.

“Given its strong cash generation capability and net cash position, we are comfortable that such payout is sustainable over the next few years even if its earnings growth remains sluggish,” he said.