Investment Highlights

• We reiterate our HOLD call on Padini with a same fair value of RM3.70/share, based on FY23F PE of 16x – 1.0 standard deviation above its 5-year mean of 13.7x on expectations of further post-pandemic recovery for its apparels and footwear business. This reflects an unchanged neutral ESG rating of 3 stars.

• Pending an analyst briefing later today, we maintain our FY23F-FY25F earnings which already factored in higher store counts as compared to 2021 and 2022.

• We view Padini’s 1QFY23 core net profit (CNP) of RM49mil as generally in line with expectations at 32% of our FY23F net profit and 33% of the consensus. In comparison, 1QFY21 accounted for 38% of FY21 CNP. For FY22, comparisons are skewed by a net loss of RM17mil in 1QFY22.

• YoY, 1QFY23 revenue of RM379mil surged 4.7x on major improvement in the operation of its mainstay - apparels and footwear at RM381mil, which grew 4.4x from RM86mil in 1QFY22. Its management service segment also posted higher revenue of RM38mil (+51% YoY).

• Apparels and footwear contributed RM61mil in pretax profit, propelling 1QFY23 bottomline from a net loss in 1QFY22.

• QoQ, 1QFY23 bottomline declined by 37% as revenue declined by 22% in the absence of festive Raya sales and mid-year school holidays, which mainly fueled the better performance in 4QFY22.

• The group declared a first interim dividend of 2.5 sen for the quarter under review, which was paid on 30 September 2022. This remains in line with our FY23F DPS of 9.2 sen.

• We note that 1Q is seasonally weaker and expect sequential earnings growth to catch up on festive spending for Christmas and year-end school holidays. Notwithstanding seasonality effects, the group continues to pay decent dividends which translate to yields mostly hovering at 3% and above.

• We remain cautious on the stock as its consumer-based business could be adversely impacted by an inflationary environment. The group currently trades at FY23F PE of 14.4x, slightly higher than its 5-year average of 13.7x.

Source: AmInvest Research - 30 Nov 2022