Investment Highlights

• We maintain our BUY call on Padini Holdings (Padini) with a lower fair value of RM3.02/share (from RM3.15/share). Our fair value for Padini is based on a PE of 13x FY22F EPS (rolled over from CY21F EPS). Our PE multiple is based on Padini’s average historical forward PE multiple.

• We cut our earnings forecasts by 11% for FY20F, 13% for FY21F and 16% for FY22F to account for the adverse impact of the Covid-19 pandemic.

• The key takeaways from yesterday’s conference call briefing are as follows:

1. 9MFY20 enjoyed better sales mix from its overseas operations (Cambodia and Thailand) from 2.4% to 3%.

2. Padini was not able to operate during the initial stages of the movement control order (MCO) as the company is not part of essential services. Hence, we can expect sales to be very weak in 4QFY20F.

3. Sales during the week of Hari Raya pales in comparison to that in 2019. It is also slower compared to Chinese New Year festive sales in January– February 2020.

4. Ultimately, this resulted in a 9% YoY drop in same store sales growth (SSSG) for 9MYF20 (dropping more than 20% YoY in 3QFY20).

5. The group will not be adding new stores in 2020. Instead, Padini will place more focus on its online platform in order to grow sales.

6. Padini does not expect any major issues from its supply chain. The biggest issue stemming from the Covid-19 pandemic is in generating sales as 99% of Padini’s stores are located in shopping malls.

7. Padini expects to come out from the pandemic stronger, as smaller competitors might not be able to defend their market share.

• Moving into 4QFY20, we believe sales will be very weak given that the company was unable to operate during the initial stages of the MCO. However, we believe sales would have started to pick up when the conditional MCO took effect and further spurred during Hari Raya week. We think that Padini’s low price point will be attractive to customers, especially during tough economic conditions.

• Key risks to Padini include a deteriorating consumer sentiment, the weakening of the MYR against the CNY, and heightened competition from other fashion apparel retailers.

Source: AmInvest Research - 3 Jun 2020