Overview. Padini turnover fell to RM81.4m (-61% qoq, -74% yoy) owing to the impact of FMCO period. The full movement lockdown which was one and half months (until mid-August), dragged 1Q22 pre-tax to -RM20.8m (-257% qoq, -174% yoy). With majority of outlets temporarily closed at full capacity, coupled with operating expenses continued to be incurred during the said period, profit margin declined 25.7 ppt to -21%.

Key highlights. Since FMCO ended in August 17, 2021, majority of the outlets and consignment counters were only able to operate from August 18, 2021. As sales were non-existence during the period, however, we think this could be one-off, as prospects of improvements are clearer – from easing SOP in Phase 4 NRP, as we entered endemic phase in end-October.

Against estimates: Below. Padini’s 1QFY22 earnings were below our expectations as it recorded a net loss of RM16.9m (-261% qoq, - 181% yoy). The main deviation against our forecast was due to the aforementioned factors.

Outlook. We revised our FY22 /FY23 /FY24 earnings forecast lower to RM43.6m /RM62.2m /RM74.3m respectively from RM73.6m /RM95.1m /RM119.1m previously to account 1) the FMCO impact, 2) high freight cost and 3) lower inventory sold amidst challenging economic slowdown. Nonetheless, its balance sheet is still in strong position with a net cash of RM517.8m or 79 sen per share, hence Padini would be able to weather the storm ahead.

Our call. We change our call to Buy with new TP of RM3.12 from RM3.58, implying PER of 33x nearly +1SD 5 years historical forward PE, pegged to FY23 EPS to reflect the clarity of long-term earnings upon normalised economic activities allowed in Phase 4 NRP.

Source: BIMB Securities Research - 29 Nov 2021