Result

• Padini Holdings Berhad (Padini) returned to the black for 1QFY21 with net profit of RM22.5m as compared to a core net loss of RM17.6m in 4QFY20. Also, 1QFY21 net earnings surged 15.8% yoy. Besides, revenue stood at RM310.7m which soared 78.4% qoq but contracting 8.1% yoy.
• Within forecasts. Padini’s 3MFY20 core net profit of RM22.5m is within our-in-house and market expectation, accounting for 24.8% and 20.3% of full year net profit forecasts respectively.

Comment

• Rebound QoQ. Padini’s registered PBT of RM28.2m during 1QFY21 (vs LBT of RM18.8m during 4QFY20) on the back of stellar revenue which jumped 78.4% qoq. Better results arising from improved footfall during recovery mandatory control order (RMCO) as business operation was re-opened amid adhering standard operating procedure (SOP). Also, we reckon that improved sales were also attributable to better sales mix during Hari Raya Haji holiday period in July’20. Additionally, PBT margin achieved double-digit growth to 19.9ppts qoq during this period.
• Better cost control spurred YoY earnings despite slumbering sales. The Group’s PBT margin inched up 1.1ppts yoy given better cost control such as lower staff cost and higher rental rebates received from malls operators. The Group has reduced its staff’s commissions as well as has not renewed its contract staff resulted in lower costs. However, revenue dropped 8.1% yoy due to high base, as sales affected by Covid-19 pandemic. During this period, effective tax rate was at 27% (vs 1QFY20:27%)
• Softening 2QFY21 result expected. For 2QFY21, we expect result to be soft given recent spike in Covid-19 cases despite upcoming festive seasons [i.e. Deepavali, Christmas and year-end-sales (YES)]. Given rising number of Covid-19 cases stemming from malls recently, we already witnessed significant drop in consumer footfalls in visiting malls, thus affecting Padini’s brick-and-mortar sales.
• Silver lining with positive newsflow on vaccine. Given recent news on effectiveness of Covid-19, we do not rule out the possibility of earlier vaccine availability in the near term. We expect gradual recovery for Padini, probably in 2HFY21 onwards with the Group back to pre-Covid-19 level backed by its resilient value-for-money product offerings. Also, the management will continue to implement cost optimisation strategies such as minimal store expansion as to maintain its cost, thus rendering better profit margin to its bottom line. We reckon that the Group will continue putting effort on its digital platform sales to mitigate impact of slower physical sales from its retail stores.
• Downside risks include: (a) Stiff retail competition especially in apparel and footwear industry, (b) Strengthening of Chinese Renminbi against Ringgit Malaysia, (c) Higher operation costs, and (d) Prolonged Covid-19 outbreaks.

Earnings Outlook/Revision

• No changed to our FY21F and FY22F earnings forecast.

Valuation & Recommendation

• Maintain HOLD call with a higher target price of RM2.60 (RM2.10 previously) as we roll over our valuation to FY22F. Our valuation is now pegged at 13.4x FY22F PE with an EPS of 19.4 sen, slightly lower to its 5-year historical mean PE of 15x.

Source: JF Apex Securities Research - 2 Dec 2020