Padini’s 9MFY23 net profit of RM165.4mn (+115.8% YoY) was slightly above our and consensus full year forecast at 81% and 80% respectively. The higher performance was due to strong sales and better product mix that was skewed towards higher-margin products. On quarterly basis, net profit dropped by 40.7% mainly due to seasonally lower sales, bonus payouts, and salary adjustments in the current quarter. Overall, we view positively the management strategy to offer more favourable product mix and good cost containment effort. After factoring in the stronger-than-expected recovery in sales, we raise our FY23/FY24 earnings forecast by 5%/4% respectively. Maintain a BUY call on Padini with a higher TP of RM5.00.

• Above expectations. 9MFY23 net profit of RM165.4mn (115.8% YoY) slightly exceeded our and consensus full year forecast at 81% and 80% respectively. The deviation against ours was mainly due to stronger-than-expected sales.

• QoQ. Padini’s 3QFY23 revenue of RM457.2mn slipped by 10.3% QoQ due to seasonal factors. Net profit fell lower or by 40.7% to RM43.4mn mainly due to lower sales and bonus payout as well as salary adjustment in current quarter. Hence, net margin shaved by 4.9 ppts to 9.5%.

• YoY. 3QFY23 revenue and net profit grew by 38.8% and 33% YoY respectively. The jump in revenue was due to a combination of higher sales on the back of economic recovery and broad-based price adjustments, in our view. Gross profit margin also grew or by 0.4ppts YoY due to product mix improvements while PBT margin was flattish YoY on the back of higher operating cost such as labour.

• YTD. Cumulatively, 9MFY23 revenue soared 60.6% YoY to RM1.3bn due to strong sales and low base effect as outlets were closed from 1 June to 18 August 2021 (or during Padini’s 1QFY22). Consequently, adjusted net profit was more than doubled to RM165.4mn on the back of better product mix that was skewed towards higher-margin products and moderation in operating cost as supply-chain disruptions eased.

• Outlook. Outlook to remain intact with sales volume to be supported by strong footfall in its outlets from increases in inbound tourism and consumer spending towards value-for-money products during an inflationary environment. On the new stores front, Padini remains conservative with plansto open less than 10 new stores as their focus now is on offering quality and value-for-money products. We view positively the management strategy to offer more favourable product mix and good cost containment efforts.

• Forecast. After factoring in the stronger-than-expected recovery in sales, we raised our FY23/FY24 earnings forecast by 5%/4% respectively.

• Our call. Padini is a BUY with higher TP of RM5.00 (from RM4.80) based on 15x PER pegged to CY23F EPS of 32 sen. We continue to like Padini due to i) value-for-money products and ii) healthy balance sheet (0.95 sen net cash/ share as at 3QFY23).

Source: BIMB Securities Research - 30 May 2023