Investment Highlights

• We maintain our HOLD call on Padini Holdings (Padini) with an unchanged fair value of RM2.87. Our fair value for Padini is based on a PE of 13x FY22F EPS.
• Padini hosted a results briefing yesterday and here are the key takeaways:
  1. Padini saw its sales contribution for its overseas business and export franchise declining slightly to 3.6% and 1.1% of revenue in 1QFY21 (vs. 4.0% and 1.3% in 1QFY20 respectively). Sales contribution from its outlets marginally increased to 93.7% of revenue in 1QFY21 (vs. 93.5% a year ago).
  2. Padini’s total number of stores fell to 125, after closing four Brand Outlet stores and two free standing stores during the quarter. No new stores were opened during the quarter.
  3. Even though Padini’s 1QFY21 coincided with the RMCO period, the company said that people were still wary of visiting shopping malls. This resulted in poor same store sales growth (SSSG) of -8% YoY.
  4. However, the magnitude of the decline is smaller than the -25% SSSG Padini recorded in FY20, which indicates a gradual recovery in footfall and sales. Sales from suburban malls were better but they were not sufficient to compensate for the loss of sales in more urban and tourist-centric malls.
  5. Growth in its e-commerce channels is lackluster, with sales still contributing less than 1% of total revenue, even with the continued effort of posting on social media. However, the group has started shipping to international markets such as Singapore since October.
  6. No dividend was announced for 1QFY21. Padini’s CFO guided that there is no confirmed timeline yet as to when dividends would be declared. The group is focusing on preserving cash instead. Padini is also adopting a waitand-see approach until the lockdown situation becomes clearer and until the group foresees a more stable recovery in its business situation.
  7. Padini is looking to strengthen its local presence, and making sure that conditions in Malaysia have stabilized before continuing its expansion plan into the Asean region more comprehensively.
• We expect a recovery in Padini’s earnings in 2QFY21 due to increased sales during the year-end festivities. However, the recovery is not expected to be robust as management said that during the CMCO period, footfall in the shopping malls was still quiet, especially in KL and Selangor.
• Moving forward, we believe Padini is well-positioned to reap the benefits of a cyclical recovery with an expected increase in consumer spending in 1H2021. Its low price point and value-for-money product offerings will be attractive to customers, which will help with its recovery as it navigates through a challenging business environment.

Source: AmInvest Research - 9 Dec 2020