• Overview. Padini posted a FY20 turnover of RM1.35bn decline of 24% yoy, owing to the impact of MCO period. The full lockdown which was one and half months (until May 5), dragged 4Q20 sales to RM174.2m or -50% qoq. The post-covid19 performance remained slow despite businesses reopening, i.e. CMCO phase, and the traditional Hari Raya sales promotion.

• Key highlights. For the quarter, Padini reported a pre-tax loss of RM18.8m on the back of lower sales due to the implementation of MCO – as April’s sales were non-existence. Consumers were still cautious of visiting malls during early phase of CMCO period hence impacting the discretionary products demand, in our opinion. Furthermore, Padini’s online channels are weak to cushion the negative impact of physical sale.

• Against estimates: Below. Padini’s 4QFY20 earnings were below our expectations as it recorded a net loss of RM16.8m (-201% qoq, -130% yoy). The main deviation against our forecast was due to the aforementioned factors.

• Outlook. Malaysia’s GDP contracted by 17.1% for 2Q20. It is also interesting that MIER’s Consumer Sentiment index rose to 90.1 pts for 2Q20 against 1Q20’s 51.1 pts). As Padini is in the mass-market segment, we opine its value-for-money apparel is in a strategic position to capture customer spending during weak economy condition. However, we think consumers remained cautious in their spending for discretionary as well luxury items. On the positive side, Padini can use this opportunity to strengthen its foothold and expand its market share in this area.

• Our call. Given absence of lockdown/MCO plus the expectation of an economic recovery for 2H20, we believe the worst is over for Padini for the year. However, we have put our estimates and recommendation under review pending updates from results briefing on 2nd Sept 2020. (Our Hold call and RM2.60 TP are currently under review).

Source: BIMB Securities Research - 27 Aug 2020