Padini's FY23 net profit of RM 222.7mn (+44.5% YoY) was in line with both our and consensus full-year forecasts, accounting for 103% respectively. On a quarterly basis, the 4QFY23 net profit increased by 32.1% QoQ, mainly due to higher sales during festive seasons (such as Hari Raya and mid-term school holidays) and a lower bonus payout. The outlook remains promising, supported by increased footfall in its outlets driven by rising inbound tourism and consumer spending on value-for-money products. We hold a positive view on the management's strategy approach of offering a more favourable product mix and their diligent efforts in containing costs. Maintain BUY with unchanged TP of RM5.00.

• Above expectations. Padini’s FY23 net profit of RM222.7mn (+44.5% YoY) was in line with ours and consensus expectations, accounting for 103% of the full year forecast respectively.

• Dividend. The company has declared a first interim DPS of 2.5 sen for FYE24, with payment scheduled for September 2023. Our estimation for the total FYE24 DPS is 13.7 sen (FY23: 11.5 sen), resulting in a projected DY of 3.5%

• QoQ. Padini's revenue for 4QFY23 saw a +4.2% QoQ increase, primarily attributed to robust sales during Hari Raya and the mid-term school holidays. Notably, the net profit experienced a significant surge of 32.1% QoQ, driven by higher sales and reduced operating costs in comparison to the preceding 1Q23, which had higher bonus payouts.

• YoY. Revenue slipped marginally by 1% YoY, attributed to lower sales in existing stores, where Same Store Sales Growth (SSSG) fell by 2.2% YoY. We believe this is a result of the higher pent-up demand in the previous Padini’s 4QFY22 (or 2QCY22) following the reopening of the economy. Net profit dropped by 26% YoY, primarily due to rising salary and incidental expenses.

• YTD. In FY23, both revenue and net profit soared by 38.1% and 44.5% YoY respectively, attributed to robust sales as all outlets were operating at full capacity and due to overall cost efficiency. Consequently, the gross profit margin increased by 0.9 ppts to 39.4%.

• Outlook. The outlook is expected to remain intact with sales volume bolstered by higher footfall in its outlets from increases in inbound tourism and consumer spending on value-for-money products. On the front of new store openings, Padini remains conservative, planning to open fewer than 10 new stores, as their current focus is on offering quality. We view positively on the management strategy to offer more favourable product mix and good cost containment strategy. The gross profit margin is anticipated to sustain at c.40-41% (similar to the average pre-pandemic level) due to the easing of freight charges and material costs.

• Our call. Maintain BUY call with unchanged TP of RM5.00 based on 14.5x PER pegged to FY24F EPS. We continue to like Padini due to i) value-formoney products and ii) healthy balance sheet (0.92 sen net cash/ share as at 4QFY23).

Source: BIMB Securities Research - 28 Aug 2023