• Overview. Padini reported a strong 1QFY23 financial numbers after revenue surged by 365.8% YoY and earnings rebounded to RM48.9mn  from losses in 1QFY22. These were mainly attributed to strong sales as all outlets were operating at full capacity compared to 1QFY22 lower base where all outlets were closed during full Movement Control Order  (MCO) period. Nevertheless, QoQ earnings dropped by 37% due to last quarter stronger festivities and mid-year holidays sales.

• Key highlights. Next quarter sales are expected to improve further due to year-end festive sales. Additionally, management targets to increase inventory turnover days to 3-4 months in FY23 (versus FY22 below 3  months). We believe this is to ensure adequate stocks and mitigate customers from switching to competitors.

• Against estimates: Inline. 1QFY23 net profit was in line with our estimate, making up 30% of full year forecast, though exceed consensus estimate at 33%.

• Dividend. Declared a 2nd interim DPS of 2.5 sen, bringing YTD DPS to 5  sen. We estimate a total FY23 DPS of 12 sen (c.50% payout), translating into a DY of 3.6%.

• Outlook. We believe the pandemic has somewhat phased out weaker competitors which allows Padini to secure more market share,  translating into stable sales growth moving forward. While we are cautious on inflationary risk that may put margins under pressure, we view positively on management strategy in producing more favourable product mix and effort to reduce operation costs. Padini FY23 growth will also be supported by the opening of 4-5 new stores.

• Our call. Reiterate a BUY call with unchanged TP of RM4.00 based on  17x PER (in line with Padini’s 0.5-SD 5-year average forward PE) pegged to FY23F EPS of 23.8sen. We continue to like Padini due to i) value-for-money products and ii) healthy balance sheet (113 sen net cash/ share as at 1QFY23).

Source: BIMB Securities Research - 30 Nov 2022