• Overview. Padini recorded sales of RM246m (-21% qoq, -50% yoy) in 2Q21 mainly due to high Covid-19 number cases which resulted in the imposition of conditional movements control order (CMCO) by the government.

• Key Highlights. Its PBT dropped to RM15.9m (-44% qoq, -79% yoy) on the back of lower revenue, as EBIT margin fell -3% and affected operating profit during the quarter. Selling & distribution expenses rose to 25.8%, which dragged operating profit down to RM21.2m (-38% qoq).

• Against estimates: Below. Padini’s 2Q21 net profit of RM10.7m (-49% qoq, -81% yoy) came in below our/consensus expectations, accounting for 37%/28% of full-year earnings forecast. Nonetheless, we remain positive on Padini’s long-term prospect given the re-opening of economic sectors and lesser restrictions on movements. The country’s vaccination rollout beginning this quarter will help speed up recovery, as herd immunity is developed. In our previous 1Q21 report, we had mentioned that we expected Padini to perform better in 2H. We had also cut our earnings forecast in September 2020, hence see no reason to review our forecast.

• Outlook. We believe that subdued consumer confident in 4Q20 has gradually recovered following the government’s steadfast action to begin to vaccinate Malaysians via The National Covid-19 Immunisation Programme. The programme, which comprises 3 phases, began as early as February. In addition, the latest i-Sinar with no restriction on withdrawals (8th March), as well as first phase payment of BPR (23rd Feb), have been offered to the public. This measures could spur quicker improvement in consumer spending ahead.

• Our call. We maintain our BUY call and TP of RM3.10 based on 24x PE pegged to FY21 EPS of 13sen. The company has a strong balance sheet with a net cash of RM520m or 79 sen net cash/share as at 2QFY21. Padini is among the key companies to benefit from an early cycle economic recovery as its products sit in mass market segment and considered affordable to the B40 & M40 groups. We recommend to accumulate the shares on dips.

Source: BIMB Securities Research - 1 Mar 2021