Investment Highlights

• We maintain our HOLD call on Padini Holdings (Padini) with a higher fair value of RM3.18/share (vs. RM3.09/share previously). We base our fair value on a higher PER of 16x CY22F EPS, rolling forward from FY22F EPS. We make no ESG-related adjustment for our rating of 3 stars.

• Padini’s 9MFY21 earnings of RM47.5 mil came in below expectations, accounting for 54% and 58% of our and consensus earnings respectively. Thus, we reduce our earnings estimations for FY21/FY22 by 28%/26% respectively to account for an underwhelming performance in 3QFY21 and a patchy recovery for the rest of CY2021 due to fluctuating Covid-19 cases.

• We lift our PER to 16x from 14x as Padini has proven to be a more-than-effective cyclical proxy for retail sector recovery, as well as key benefactor of pent-up demand.

This remains slightly below the group’s five-year mean of 16.5x.

• We expect the group to ride on the wave of recovery in CY22F, when we forecast a stable recovery in earnings.

Following the relaxation of MCO 2.0, the share price rose to a peak of RM3.30 in 13 April 2021, a 27% uptick from the lows in the midst of MCO 2.0.

• However, we presume that near-term weakness will prevent a rerating to pre-pandemic highs for now. We opine that any rerating will only occur in CY22F, when lasting normalcy in footfall patterns is expected. For now, a repressed demand for outdoor wear and uncertainty in store opening periods will continue the trend of reduced earnings.

• The group reported a revenue of RM263mil in 3QFY21, a 7% QoQ rise. The group attributes this to the festive season of CNY. On a YoY basis, revenue experienced a fall of 24%.

• As for PAT, the group reported a haul of RM12.2mil for the quarter, a 14% QoQ increase. Stronger sales and lower tax rate offset higher admin expenses incurred in the quarter. On a YoY basis, PAT fell by 27%.

• PAT margins remained flattish at 4.6%, increasing by a slight 0.3 ppt QoQ and falling by 0.2 ppt YoY.

• The group has declared a 1st interim dividend of 2.5 sen for the quarter, payable in June 2021.

Source: AmInvest Research - 27 May 2021