KUALA LUMPUR (May 20): Padini Holdings Bhd rose 3.7% in early trade today after AllianceDBS Research upgraded the stock to “Hold” at RM1.35 with a higher target price of RM1.38 (from RM1.20) and said that after disappointing earnings in the first two quarters, Padini’s 3QFYJune15 results improved substantially.

At 9.10am, Padini rose 5 sen to RM1.40 with 405,100 shares traded.

In a note today, AllianceDBS Research vice president for equity Cheah King Yoong said Padini reported stronger core earnings of RM27 million (+29% y-o-y, +69% q-o-q),  boosted by (1) higher revenue as consumers purchased ahead of the GST and new shops that opened during the period, and, (2) better product mix, which led to higher gross margins in 3QFY15 of 44%, compared with 41% in 2QFY15.

Cheah said this lifted 9MFY15 earnings to RM62 million, accounting for 86% and 76% of our and consensus’ full year estimates.

He said the group declared a 2.5 sen DPS for the quarter, bringing 9MFY15 DPS to 7.5 sen.

“Raised FY15F earnings by 5%.While we acknowledge that our FY15 earnings forecast would seem to be conservative in view of the stronger than expected pre-GST purchases and improved margins in 3QFY15, we remain cautious that 4QFY15 earnings (from April to June)  could weaken considerably after the implementation of GST in April.

“We have thus raised our FY15F earnings slightly by 5% due to the stronger than expected 3Q results, but maintain FY16-17F earnings. Our FY15 net profit estimate is 6% below consensus.

“Raised target price to RM1.38, upgrade to Hold. Reflecting the earnings revisions, we have raised Padini’s target price to RM1.38, based on an unchanged PE of 12x. Upgrade to Hold,” said Cheah.