Investment Highlights

• We maintain our HOLD call on Padini Holdings (Padini) with an unchanged fair value (FV) of RM2.36/share. Our FV for Padini is based on a PE of 13x FY22F EPS.

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

1. Padini achieved a better overseas sales mix in FY20. Overseas sales accounted for 3.3% of total revenue in FY20 compared with 2.4% in FY19.

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. However, stores have reopened since May 2020 and sales are expected to be better in subsequent quarters.

3. The group was also hit by the lack of tourists as tourist customers make up roughly 30–50% of sales in tourist-centric stores like in Pavilion, KLCC and Fahrenheit 88 Mall.

4. Ultimately, this resulted in poor same store sales growth (SSSG) as reflected in the YoY drop of 25% in FY20. SSSG was particularly hit in 4QFY20 as sales plunged by 66% YoY due to temporary store closures during the MCO. We believe Padini’s SSSG will improve sequentially as stores reopen.

5. The group’s basket size remains similar at about RM50 per ticket or around RM80–RM100 per ticket during festive seasons.

6. Padini is working on growing its online platform as the group’s online sales only cater to the domestic market at the moment. Sales from this channel was less than 1% in FY20.

7. Padini has maintained its number of stores in FY20 (55 Brands Outlet, 48 Padini Concept Store and 28 free standing stores). The group has not firmed up its store expansion plans yet.

• Moving into 1QFY21, we believe sales will begin to pick up. Sales during the Hari Raya Haji holiday period should also help buoy the group’s sales recovery. We think that Padini’s low price point will be attractive to customers, especially during tough economic conditions.
• However, we believe Padini’s long-term prospects will be challenging due to unexciting domestic outlook and saturation in the fast fashion industry.

Source: AmInvest Research - 3 Sept 2020