HLG: 28 Feb Padini - Strong domestic sales

Padini Holdings Bhd BUY
Price target RM4.40
Share price at 27 Feb RM3.48

Investment summary
H108 results were 30% ahead of HLG/market estimates, partly due to seasonality, but also due to surprisingly strong same-store sales growth from its Padini brand. Positive results re-affirm our BUY call on the stock, and we raise our price target by 22% to RM4.40.

We like Padini because:
(1) ST domestic growth driven by same-store sales growth and store expansion;
(2) its retail franchise expansion overseas will provide the next leg for growth;
(3) cheap valuations vs. regional peers, at FY08 PE of 11x with 3 year EPS CAGR of 25%. We are neutral on Malaysia’s consumer sector, given the looming inflationary pressure offsetting GDP growth, public sector pay hikes and strong tourist arrivals for Visit Malaysia Year 2007.



Record sales and profit

Share price has risen +41% since our initiation in Aug07, but we still believe there is sufficient upside to retain a BUY:
(1) quarterly EPS continues to beat the mkt;
(2) valuations are still just half of its HK peers, despite regional brand scalability.