• Overview. 1QFY21 revenue rebounded to RM310m (+78%, -8% yoy) reflecting a recovery in consumer spending – after 47 days of lockdowns in 4QFY20. Economic data has since pointed towards improvement in private spending (-2.1% in 3Q20) during the post-recovery due to loosening of movement restrictions compared to 2Q20. This was aided by wage subsidies programme, EPF via i- Lestari withdrawals as well as cash aid measures (BPN & BPR).
• Key highlights. Pretax-profit recovered to RM28.2m (+250% qoq, +5% yoy) on the back of higher GP margin of 38% and relaxed regulation during RMCO period, ie almost normalised business hours and consumers adjusting to an entirely new shopping behaviour and experience.
• Against estimates: Inline. Padini’s 1Q21 net profit of RM20.7m (+223% qoq, +5.7% yoy) came in within our expectation at 25% of our full year forecast. Against consensus however, its earnings came in below constituting 19% of full year estimates.
• Outlook. We believe that the negative consumer sentiment due to Covid19 has improved following the opening up of economic sectors since May. Although cases have risen, the response by the government has been swift in ensuring that consumer confidence recovers, with shopping visits to malls accelerating despite the RMCO. With vaccine supply expected to arrive as early as 1Q2021, Padini is seeing light at the end of the tunnel, in our view. We estimate that consumer spending will gradually recover as we move ahead, cemented by various financial aids & loan moratorium by the government to the B40 & M40 groups
• Our call. We maintain our earnings forecast but will monitor closely developments with regards to the retail sector as Padini is among the key company to benefit from an early cycle economic recovery. We believe that there is possible upside to our earnings estimate particularly with vaccines being made available, which could spur a quicker improvement in consumer spending. Consequently, we raise our TP to RM3.10 from (RM2.60) based on DCF methodology applying WACC of 6.8% (unchanged from previous) and terminal growth of 3.0% (previously 1%) which implies 2021F/2022F PE of 18x/14x. Padini’s share price has fallen to RM1.78 low in March and we believe it deserves a re-rating as being a prime beneficiary of consumer recovery. The company has a strong balance sheet with a net cash of RM511.7m or 78 sen net cash/share as at 1QFY21. Upgrade to BUY from HOLD with an upside of 16%.

Source: BIMB Securities Research - 30 Nov 2020