Result

• Padini Holdings Berhad posted a net profit of RM16.6m during 3QFY20 which deteriorated 70.3% qoq and 52% yoy. After excluding unrealized forex gain, the Group’s core net profit of RM15.1m tumbled 73.1% qoq and 57% yoy. On the same note, revenue also depleted 29.9% qoq and 26.8% yoy to RM347.3m.

• As for 9MFY20, the Group registered core net profit and revenue of RM90.7m and RM1.2b, down 14.1% yoy and 6.8% yoy respectively. The disappointing results were dented by subdued sales performance due to Movement Control Order (MCO) imposed by government arising from COVID-19 pandemic.

• Substantially below our in-house expectations. The Group’s 9MFY20 core net profit of RM90.7m is substantially below our forecast (only account for 66.4% of full year net earnings forecast) but within market forecast (70.4%)

Comment

• Subdued QoQ…. Padini’s revenue and PBT tumbled 29.9% qoq and 68% qoq during 3QFY20 following lower sales generated due to closure of retail stores arising from MCO. The Group’s business has been categorized as non essential business during MCO period and thus halting the revenue growth although having online sales platform. Meanwhile, PBT margin down 8.2ppts in view of higher operating cost. Moreover, effective tax rate also inched higher (27% vs 2QFY20: 26%) due to higher non deductible expenses.

• …as well as YoY. The Group’s revenue and PBT also worsened on yearly basis, depleted 26.8% yoy and 48.8% yoy respectively in view of moderate sales and higher operating cost incurred. On the same note, PBT margin also dropped by 3ppts.

• Cumulatively, 9MFY20 revenue and PBT down 6.8% yoy and 13.5% yoy respectively. We believe it was due to Covid-19 pandemic which led to closure of business operation thus dragging down overall performance during 9MFY20.

• Soothing outlook. Looking forward, we expect the Group’s business performance will be impacted by Covid- 19 pandemic outbreak in near term which halted overall business growth. However, the Group will implement cost optimism strategy to reduce the impact. Overall, we expect FY20F growth will remain subdued, dented by minimal store expansion as to maintain its cost allocation, lower contribution from its overseas operations (i.e. Cambodia and Thailand) as well as Covid-19 pandemic outbreak which slowdown the overall business growth.
• Downside risks include: (a) Stiff retail market competition, (b) Strengthening of Chinese Renminbi against Ringgit Malaysia and (c) Prolonged Covid-19 outbreak

Earnings Outlook/Revision

• We cut our FY20F and FY21F net earnings forecasts by 25.5% and 23.4% respectively, accounting for lower-than-expected performance in view of subdued sales growth and higher operating cost due to Covid-19 pandemic as well as higher effective tax rate.

Valuation & Recommendation

• Maintained HOLD with lower target price of RM2.60 (RM3.00 previously) as we roll over our valuation to FY21F. Our valuation is now pegged at 15.2x FY21F PE with a revised EPS of 17.1 sen (20.8sen previously), slightly higher to its 5-year historical mean PE of 13.9x.

Source: JF Apex Securities Research - 28 May 2020