• Overview. Padini’s 9MFY22 revenue increased to RM837.9m (2.2% yoy) while earnings soared to RM76.6m (75.9% yoy). This was mainly due to higher sales as a result of increased footfall in shopping malls from the relaxation of movement restrictions as well as higher vaccination rates. Additionally, the right-sizing of the workforce to optimize cost efficiency has seen its EBITDA margin increase to 23.6% (+3.6 ppts yoy).

• Key highlights. On a qoq basis, Padini’s 3QFY22 net profit decreased to RM32.6m (-46.4% qoq) mainly due to a higher base from the last quarter festive season higher sales and current quarter higher cost on bonus payout.

• Against estimates: Above. 9MFY22’s net profit of RM76.6m was above our forecast at 175.7%.

• Dividend. Declared 3rd interim DPS of 5 sen, bringing YTD DPS declared of 10 sen. We estimate a total FY22 DPS of 12.5 sen (c.80% payout), translating into a DY of 3.9%.

• Outlook. Moving forward, business activity is expected to normalize as the nation enters the endemic phase. We anticipate Padini to register strong sales in 4QFY22 on account of the Hari Raya festive season. Nevertheless, we remain cautious on the likelihood of margin erosion due to ongoing supply chain issues and inflationary pressures.

• Earnings revision. We revised higher our FY22F/F23F earnings by 129%/88% respectively to factor in higher-than-expected sales.

• Our call. We relook our valuation using PER 21x (previously 32x) pegged to FY23 EPS and derived a new TP of RM3.70. Our valuation is justified based on Padini’s 5 years average forward PE and to better reflect clarity in earnings. Maintain BUY recommendation. The company has a healthy balance sheet position with a net cash of RM721.8m or 110 sen net cash/ share as at 3QFY22. We continue to like Padini due to its value-for-money products that offers an attractive option for consumers seeking a trade-off during tightened budget constraint.

Source: BIMB Securities Research - 30 May 2022