Result

• Padini Holdings Berhad (Padini) posted a core net profit of RM11.2m during 3QFY21 which slid 5.8% qoq and 25.8% yoy. Meanwhile, revenue soared 6.9% qoq but depleted 24.3% yoy.

• As for 9MFY21, the Group’s core net profit of RM45.6m declined 49.7% yoy on the back of sluggish revenue, - 30.6% yoy. The dismal results were dented by re implementation of movement control order pursuant to resurgence of Covid-19 cases which bogged down overall Padini’s performance.

• Within our expectations. Padini’s 9MFY20 core net profit of RM45.6m is within our in-house estimate which accounts for 71.9% full year core net profit forecasts but substantially below market expectation (55.8%).

• Dividend declared. The Group has declared a first interim dividend of 2.5sen/share (single-tier dividend) for FY21 which makes up 50% of our full year FY21F dividend per share.

Comment

• Lunar new year festive season boosted QoQ results. Padini’s revenue increased 6.9% qoq, thanks to improved sales generated during Chinese New Year festive season. Meanwhile, profit before tax (PBT) grew 5.7% qoq during this period buoyed by better sales mix, we believed. Stellar sales were managed to capture although outlets were only able to open two days before Chinese New Year festive season. Also, we expect the Group extended its sales campaign post Chinese New Year to clear the stockpiles thus resulting greater performance on quarterly basis.
   
• Reinstated control movement order bogged down YoY growth. On yearly basis, revenue and PBT tumbled 24.3% yoy and 30.3% yoy respectively resulted from imposition of movement controls by the Government arising from spike of Covid-19 cases. All Padini outlets had to close in all states except Sarawak from 13th Jan 2021 until 9th Feb 2021. Thereafter, outlets were allowed to open started 10th Feb 2021 with strict standard operating procedure (SOP) to adhere.
   
• Dismal 9MFY21, gloomy FY21F expected. 9MFY21’s PBT margin was down 3.3ppts yoy on the back of slumbering revenue which tumbled 30.6% yoy, bogged down by Covid-19 pandemic. As for the following quarter, we expect the business operation will remain struggle as Covid-19 cases were showing uptrend recently. Additionally, after government revealed Hotspots Identification for Dynamic Engagement (HIDE) Covid-19 hotspot list which mainly focuses on numerous shopping malls and supermarkets, the Group has closed down 43 outlets for three days. Although the outlets has resumed operation, we expect consumer footfall will remain weak at this juncture given concern on recent Covid-19 cases as well as stringent SOP applied during MCO 3.0 which was started on 25th May 2021 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 albeit recent commencement 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

• No changes on our FY21F and FY22F core earnings forecast.

Valuation & Recommendation

• Maintained SELL with an unchanged target price of RM2.40. Our valuation is pegged at 20x FY22F PE with an EPS of 12sen, slightly above to its +1SD of 5-year historical PE of 19.2x.

Source: JF Apex Securities Research - 27 May 2021