KUALA LUMPUR : AllianceDBS Research has upgraded its rating on Padini Holdings Bhd to a 'buy' recommendation as the retailer is set to benefit from the ringgit's recent recovery against the dollar which lowers its overall inventory cost.
The research house now has a 'buy' rating on Padini's shares with a target price of RM2.25, representing a 16% upside from the stock's closing price of RM1.94 on Monday. As at 10:45AM today, the stock had risen five sen to RM1.99 per share.
In a note today, AllianceDBS said the group's upcoming third quarter results for the financial year ending June 30, 2016 (Q3FY16) should be strong as it expects Padini to continue to report double digit year-on-year growth in both its revenue and bottom line.
“We are comfortable that the group is well on track to meet our revised FY16 net profit forecast of RM120mil. The group sources about 65-70% of its product from China, which are denominated in the renminbi, with the remainder in US dollar. The ringgit's recovery against both currencies will help lower inventory cost and improve its margin in the coming quarters,” it said.
It added that Padini's earnings growth is underpinned by several factors including a attractive mix and match bundling strategy as well as 11 new store openings compared to the same period last year.
The research house said that Padini's gross profit margins in Q2FY16 were dragged down by its four-day nationwide special sales promotion which accounted for 14% of its quarterly sales. With the absence of festive sales in Q3, the group's margin should improve over this period, it explained.
AllianceDBS now has a 'buy' rating on Padini's shares with a target price of RM2.25, representing a 16% upside from the stock's closing price of RM1.94 on Monday. As at 10:45AM today, the stock had risen five sen to RM1.99 per share.
PADINI (7052) - AllianceDBS upgrades Padini to 'buy' on strengthening ringgit
http://www.thestar.com.my/business/business-news/2016/04/19/alliancedbs-upgrades-padini-to-buy/
