• Overview. 3QFY21 net profit reduced by 27% yoy to RM12.2m as higher costs dragged earnings lower. Revenue was impacted by 24% yoy coming in at RM262.9m due to subdued consumer spending during imposition of movement controls (CMCO and MCO 2.0).
   
• Key Highlights. On qoq basis, both top-line and bottom-line increased by 7% and 14% on the back higher profit margin of 5% thanks to the Chinese New Year festival. Other income rose by 52% qoq, whilst lower selling and distribution expenses lift its operating profit to RM21.7m.
   
• Against estimates: Below. 9MFY21 net profit of RM43.6m was below our and consensus expectation at 52% and 39% respectively. We cut our FY21/FY22/FY23 earnings estimates by 36%/35%/32% to account for MCO 3.0 and possible HIDE (Hotspot Identification for Dynamic Engagement) implication which could lead to disappearing footfall into malls. With successful implementation of the vaccination taking longer-than expected, this will also impact consumer spending going forward.
   
• Outlook. With the spike in covid-19 cases recently coupled with implementation of HIDE system, the retail market is at risk of reversing the recent recovery. Unlike MR.D.I.Y where its home improvement products and stand-alone store is continued to see in demand, Padini’s sales and store coverage is too dependent on brick and mortal channel and remained highly focussed in Selangor and KL area.
   
• Key Highlights. The Board has declared a first DPS of 2.5 sen for FY21. At current share price, this would translate into DY of 0.9%
   
• Our call. We now see the stock reaching closer to our valuation with an upside of 7% from current price. Hence, we changed our recommendation from BUY to HOLD. Our TP of RM3.10 based on 28x PE on its FY22 EPS of 11 sen. The company has a strong balance sheet with a net cash of RM520m or 79 sen net cash/share as at 3QFY21.

Source: BIMB Securities Research - 27 May 2021