• Maintain HOLD (TP: RM3.80). Padini’s 9MFY24 net profit of RM120.3mn (- 27.3% YoY) was in line with both our and consensus expectations, accounting for 73% and 72%, respectively. Padini declared a 4th interim DPS of 2.5sen and a special DPS of 1.5sen, bringing YTD DPS to 11.5sen, the same as 9MFY23 of 11.5sen. Padini’s 3QFY24 revenue spiked by +25.8% YoY, supported by increased in sales during the festival season. Nevertheless, net profit declined by -6.6% YoY, affected by higher input costs and rising staff costs, mainly due to bonus payouts. We remain cautious on Padini’s outlook as the upcoming subsidy rationalisation initiative (SRI) and anticipated near term higher operating cost might hinder Padini’s earnings growth. We maintain a HOLD call on Padini with an unchanged TP of RM3.80, pegged at a PER of 14x to CY24 EPS of 27 sen.

• Key highlights. Padini’s 3QFY24 revenue spiked by +15.1% QoQ to RM575.4mn, primarily attributed to a surge in sales during the festive season such as CNY, earlier Raya, and the school holiday. However, net profit declined by -23.7% to RM40.5mn mainly due to the bonus payout. Similarly, Padini’s 9MFY24 revenue increased by +8.8% YoY, while net profit declined significantly by -27.3% YoY, primarily attributed to a lower GP margin of 36.5% (-3 ppts YoY) aligning with higher input costs and rising staff costs.

• Earnings Revision. No changes to our forecast pending briefing

• Outlook. Prospectively, management will focus on providing value-for-money goods, implementing better cost management measures, and enhancing product quality to maintain competitiveness over the long term. Regardless, we maintain our cautious view on Padini’s near-term outlook, aligning with the anticipated SRI, which may hinder purchasing power, especially from their main customer base, the M40 group. Despite Padini’s value-for-money garments, demand may shift to basic needs such as food staples when inflationary pressures hit. This will potentially impact sales, along with anticipated higher operating costs (i.e., labour costs, distribution costs, and raw material costs).

Source: BIMB Securities Research - 31 May 2024