Investment Highlights

• We maintain our HOLD call on Padini Holdings (Padini) with a slight tweak to our fair value (FV) to RM3.15/share (from RM3.18/share). Our FV is derived from unchanged 16x target PER on 16x FY23F (June) EPS (from CY22F). We make no ESG-related adjustment for our 3-star rating.

• Padini’s 1HFY22 earnings of RM44.0mil (+77% YoY) were below our expectations but within street’s, accounting for 40% and 52% of our and street’s estimates. Our projection of a supernormal profit, to be driven by pent-up demand after the economy reopens, fell short.

• Nevertheless, the company’s 2QFY22 earnings did improve substantially to RM60.9mil, from a net loss of RM16.9mil in 1QFY22. The strong performance was mainly attributed to the relaxation of the movement control order coupled with stronger year-end sales due to seasonality. Padini’s revenue soared 425% QoQ and 74% YoY to RM427.2mil as footfall returned. We believe the performance is unlikely to be repeated in upcoming quarters given the absence of the pent-up demand element.
  Despite reporting a lower revenue of RM508.6mil (-9% YoY), Padini’s earnings improved 28% in 1HFY22, supported by wages subsidy and rental rebates.

• Dividend. A first interim dividend of 2.5 sen was declared which translates into a 27% payout ratio of 1HFY22 EPS.

• Earnings revision. We cut FY22F and FY23F earnings estimates by 16% and 14% respectively after imputing lowerthan-expected earnings and a more conservative sales assumption.

• Recovery priced in. The company will continue to benefit from the economic recovery as consumers return, hence we are projecting 71% and 41% earnings growth in FY22 and FY23. However, we believe the share price is fairly valued at the current level, trading at 16x PER of FY23F EPS, near its historical average of 16.5x PER.

Source: AmInvest Research - 24 Feb 2022