Investment Highlights

• We maintain our HOLD call on Padini Holdings (Padini) with a higher fair value of RM3.09/share (vs. RM2.87/share previously. Our fair value is pegged to a PE ratio of 14x FY22F EPS vs. 13x originally. The PE of 14x is slightly below the group’s five-year mean of 16.5x.

• Padini’s 1HFY21 core net profit of RM34.3mil was below both our and consensus estimates as it made up only 29% and 31% of full-year estimates respectively. The core net profit was arrived at after adjusting for net unrealized loss on foreign exchange amounting to RM3mil. No dividends were declared for the quarter, as expected.

• Hence, we reduce our earnings forecast for FY21F by 26% to RM88.7mil, to account for weaker sales in 2HFY21 as a result of the reimplementation of the MCO in Malaysia, which started on 13 January. We make no changes to FY22F and FY23F earnings forecasts for now as we believe Padini would benefit from the gradual reopening of the economy and the consumer retail recovery.

• Padini’s 1HFY21 revenue decreased 33% YoY to RM556.7mil while PBT decreased by 57% YoY. This was due to the adverse impact of the pandemic and the restrictions measures put in place which reduced footfall to its stores, and the absence of sales from tourists.

• GP and PAT margins were down 2.2 ppts and 2.9 ppts to 38% and 8% respectively in 1HFY21 as we believe that more stores underperformed during the period. Effective tax rate was also higher in 1HFY21 due to an increase in non-deductible expenses.

• Comparing 2QFY21 with 1QFY21, revenue fell by 21% to RM246mil from RM311mil mainly due to lower sales generated in the current quarter. Historically, Padini’s 2Q is one of its strongest performing as year-end festivities, Christmas, and tourist sales usually boost its earnings.

• Hence, the weak sales were a surprise. We attribute this to the reinstatement of the CMCO during the quarter under review vs. the RMCO in the previous quarter. The CMCO affected footfalls to the stores as customers avoided going to malls and reduced their spending on discretionary products as the number of cases rose.

• Moving forward, we believe Padini is well-positioned to reap the benefits of the cyclical recovery out of the pandemic with the national vaccination programme underway. While prospects for FY21F remain challenging, the low price point and value-for-money product offerings remain appealing to the mass market.

Source: AmInvest Research - 1 Mar 2021