Result

• Padini Holdings Berhad (Padini) registered a net loss of RM16.8m during last quarter of FY20. After excluding unrealized forex gain, the Group’s posted a core net loss of RM17.6m as compared to a core net profit of RM15.1m in the last quarter and RM53.7m a year ago. Besides, revenue also tumbled 49.8% qoq and 66.3% yoy to RM174.2m.

• As for full year FY20, the Group remarked a core net profit and revenue of RM73.1m and RM1.4b, which deteriorated 54.1% yoy and 24% yoy respectively. The uninspiring results were dented by sluggish sales performance arising from the Movement Control Order (MCO) imposed by the government due to COVID-19 pandemic as well as impact of MFRS 16.

• Below forecast. The Group’s 12MFY20 core net profit of RM73.1m is substantially below our-in-house and market estimates, only accounts for 71.9% and 69.6% of full year net profit forecasts respectively.

Comment

• Poor footfall amid Hari Raya festival. Padini’s revenue tumbled 49.8% qoq during 4QFY20. During this period, no sales were generated during April’20 (since commencement of MCO on 18th Mar) and business only started on 5th May under the Conditional MCO (CMCO). We reckon that lower footfall during CMCO as customers still cautious in visiting mall albeit Hari Raya festive season, thus dampening its overall quarterly revenue. Moreover, the Group also recorded a loss before tax (LBT) of RM18.8m (vs PBT of RM15.1m during 3QFY20) in view of with higher operating expenses which led to slide in margin of 17.7ppts.

• MCO bogged down YoY earnings. The Group’s performance was slumbering on yearly basis as revenue tumbled 66.3% yoy resulted in sluggish LBT of RM18.8m (vs PBT of RM73.4m during 4QFY19). Overall YoY performance was dragged down by MCO imposed by the government to curb the spreading of COVID-19 virus. Moreover, Padini incurred higher selling and distribution costs (73.2% from total expenses) amid growing finance cost thus resulting LBT margin dropped by 25ppts.

• Cumulative 12MFY20 revenue and PBT down 24.0% yoy and 51.0% yoy respectively, no thanks to lockdown during pandemic. Notably, their overseas operation such as Thailand (operates 7 Vincci stores) was also severely affected by the global lockdown (Thailand resumed its operation on 16th May). Moreover, FY20 performance was also dampened by implementation of MFRS 16 Leases. Besides, effective tax rate also higher during FY20 at 30% (vs FY19: 27%) due to higher non deductable expenses.
   
• Lesser dividend payment for FY20. No dividend payment during 4QFY20, thus brings cumulative dividend payment of 7.5sen/share for FY20 (vs FY19: 11.5sen/share). For FY21F, we expect dividend payment of 9.5sen/share which translate into 4.4% dividend yield.
   
• Moderate outlook for FY21F. Looking forward, we expect the Group’s business performance to be soft in its near-term earnings outlook, probably till 1HFY21, with poor consumer sentiment in view of lower customer’s footfall amid pandemic. We understand that the management will not be adding any new stores for CY2020. In fact, Padini will focus on its e-commerce platform to boost its sales growth. However, we reckon that the e-commerce platform contribution will literally small. Overall, we expect FY21F growth will moderate, dented by minimal store expansion as to maintain its cost allocation strategy, lower contribution from its overseas operations (i.e. Cambodia and Thailand) as well as new wave of 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, (c) Higher operation cost and (d) Prolonged Covid-19 outbreak.

Earnings Outlook/Revision

• We cut our net profit for FY21F by 19.6% to RM90.6m (+20.4% yoy) to account for lower-than expected performance arising from subdued sales growth and higher operating cost pursuant to Covid-19 pandemic. Besides, we also introduce FY22F earnings forecast of RM127.9m which translate into a 41.1% yoy earnings growth.

Valuation & Recommendation

• Maintained HOLD call with a lower target price of RM2.10 (RM2.60 previously) following our earnings cut. Our valuation now pegged at 15.2x FY21F PE with a revised EPS of 13.8 sen (17.1sen previously), slightly higher to its 5-year historical mean PE of 14.2x.

Source: JF Apex Securities Research - 27 Aug 2020