Investment Highlights

• We maintain BUY call on Padini with an unchanged fair value of RM5.70/share, based on FY24F PE of 16x – at parity to its 10-year average. This reflects an unchanged neutral ESG rating of 3-star.

• FY23 net profit of RM222mil came in within expectations, 5% below our forecast and 2% above consensus. Hence, we made no changes to our FY24F-FY25F assumptions and introduce FY26F earnings premised on improving revenue growth of 5.9% and stable gross profit margin of 39.4%.

• Also, the group declared an interim dividend of 2.5 sen per share for FY24, in line with our expectation. Together with 4QFY23 dividend of 4 sen (2.5 sen ordinary and 1.5 sen special) which was declared earlier on 29 May, the group’s FY23 total DPS of 11.5 sen dividend per share was also within expectation.

• YoY, FY23 revenue grew 38% thanks to stronger demand and higher store traffic at outlets in tandem with the reopening of the economy. FY23 net profit rose 45% due to (i) better product mix as gross profit margin improved by 0.9%-point to 39.4% on declines in fabric and freight costs, and (ii) better operational efficiency.

• QoQ, 4QFY23 revenue improved by 4% backed by higher sales on festivities (Hari Raya) and school holidays. However, 4QFY23 net profit rose faster by 32% due to higher sales and lower administrative cost in the absence of bonus payout adjustment, which was incurred in 3QFY23.

• Looking ahead, we expect robust FY24F sales to be underpinned by (i) store expansions, which includes 6 new outlets in our assumption, (ii) sustainable demand due to supportive government policies involving cash handouts to the B40 group as well as stable unemployment rate and (iii) resurgence of international tourists.

• Padini’s earnings prospects continue to remain favourable backed by better gross profit margin resulting from reduced material and freight costs coupled with enhanced operational efficiency.

• The group currently trades at FY23F PE of 11x, lower than its 10-year average of 16x while offering a decent yield of 3%.

Source: AmInvest Research - 28 Aug 2023