Padini’s valuations ahead of near-term prospects
KU ALA LUMP UR: Despite beating expectations with a healthy first quarter of financial year 2018 (1QFY18) earnings of RM31.2 million, analysts are of the opinion that Padini Holdings Bhd’s (Padini) current valuations have run ahead of its near-term growth prospects.
For 1QFY18, Padini’s earnings saw a +9.1 per cent year over year (y-o-y) increase and revenue of RM315.2 million that saw a +1.7 per cent yo-y increase. The increases were attributed to an earlier celebration of Hari Raya Aidilftri as well as the four days special sales promotion which were both held in June.
The positive results helped fuel positive sentiments towards Padini’s growth prospects both locally and regionally.
In a report, AmInvestment Bank Bhd (AmInvestment Bank) suggested that the group’s regional expansion to Cambodia while a positive development, is a long-term positive rather than short-term.
“Initial contributions are unlikely to be significant given it is likely weighed by start-up costs and a gestation period tied to aspirational regional fashion brands exploring into new markets,” explained the bank.
Similarly, AllianceDBS also agreed that the group’s stock has run ahead of its fundamentals when compared to its historical valuation means.
“Despite its bright earnings prospects, we believe valuations have run ahead of fundamentals.
“The stock is currently trading at 18.6 fold FY18F price earnings which is about +2D above its historical mean. This also implies price earnings to growth of over 1,” they explained.
In view of the positive 1QFY18 results, AmInvestment bank is elevating its earnings estimations for the group for the next three financial years by 7, 2 and 3 per cent.
“We maintain our ‘hold’ recommendation as we lift our fair value to RM4.52, which is based on a PE 15 fold peg and valuations rolled over to FY19 earnings per share.
On the other hand, AllianceDBS who is taking a more bearish stance has decided to downgrade their recommendation to ‘fully valued’ from ‘hold’ with an unchanged target price of RM3.55 to reflect the stock’s current rich valuations.