Result

• Padini Holdings Berhad (Padini) registered a core net profit of RM11.9m during 2QFY21 which deteriorated 47.1% qoq and 78.8% yoy on the back of dismal revenue which dropped 20.8% qoq and 50.3% yoy.

• As for 1HFY21, the Group’s core net profit of RM34.4m depleted 54.5% yoy amid disappointing revenue, -33.2% yoy.

• Below expectations. Padini’s 6MFY20 core net profit of RM34.4m is below our-in-house and market expectation, only accounting for 38% and 30.6% of full year core net profit forecasts respectively. The lower-than-expected results was dented by reinstated conditional movement control order (CMCO) pursuant to Covid-19 which bogged down overall performance.

Comment

• Reinstated CMCO weighed down both QoQ and YoY performance. Padini’s revenue and PBT dropped 20.8% qoq/20.3% yoy and 43.6% qoq/78.9% yoy respectively during 2QFY21, no thanks to reinstated of CMCO in certain areas during Oct’20 which led to disappointing sales to the Group’s operation. Additionally, PBT margin dropped by 2.6ppts qoq/8.7ppts yoy in line with dismal revenue. During this period, effective tax rate was higher c.26%- 29% in view of higher non-deductible expenses.

• Discouraging 9MFY21. 9MFY21’s PBT margin down 4.3% ppts due to higher cost incurred on the back of sluggish revenue which was down 33.2% yoy. Both revenue and PBT tumbled due to high base as Group’s performance was dented by Covid-19 pandemic outbreak.

• Gloomy result expected in 3QFY21. For 3QFY21, we expect result to be lower as business operations were closed since MCO 2.0 (starting 13 January 2021) until 8 February 2021 following recent spike of Covid-19 cases in our nation. Although Padini was allowed to resume its operation, we believe consumer footfall to remain low thus affecting its brick-and-mortar sales.

• Challenging environment in the near term. We deem the Group’s business operation to remain challenging in the near term amid current pandemic situation despite recent commencing of vaccination programme. We expect the Group to experience disappointing operating margin arising from higher cost amid lower rental rebate from landlords. Although stock inventory is at satisfactory level currently, we expect lower consumer footfall to hamper the business performance amid marginal contribution from e commerce sales (less than 1% revenue contribution to Group level).
• 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

• We cut our FY21F and FY22F core earnings by 30% yoy and 38.3% yoy respectively to account for lower sales volume as well as weaker margin.

Valuation & Recommendation

• Downgraded to SELL from HOLD call with a lower target price of RM2.40 (RM2.60 previously) following our earnings downgrade. Our valuation is now pegged at 20x FY22F PE with an EPS of 12sen (19.4sen previously), slightly above to its +1SD of 5-year historical PE of 19.8x.

Source: JF Apex Securities Research - 1 Mar 2021