Result

• Padini Holdings Berhad (Padini) registered a core net profit of RM10.5m during 4QFY21 which depleted 6.7% qoq but rebounded from core net loss of RM17.6m a year ago. Meanwhile, revenue slid 20.2% qoq but jumped 20.4% yoy.

• As for full year FY21, the Group’s core net profit of RM56.1m declined 23.3% yoy amid disappointing revenue, -24% yoy. The discouraging results were resulted from re-implementation of lockdown pursuant to rising Covid-19 cases which led to closing of more stores.

• Below our expectations but within market estimate. Padini’s 12MFY21 core net profit of RM56.1m is substantially below our in-house estimate which only accounts for 88.5% full year core net profit forecast but within market expectation (92.1%).

Comment

• Full closure of all retail outlets weighed on QoQ results. Padini’s revenue and PBT slid 20.2% qoq and 21.4% qoq respectively given implementation of lockdown which led to closure of all of its store operations. During 3QFY21, all of its stores were closed since 1st June due to Full Movement Control Order (FMCO), the Group only opened its Sarawak stores on 14th July (as Sarawak had moved to Phase 3 states on 1st July under National Recovery Plan (NRP)). After that, all of the stores were allowed to open starting 18th August after relaxation of economic activities with stores to be reopened in states but subject to strict standard operating procedure (SOP). Businesses are now allowed to resume operations with limited workforce and only to serve fully vaccinated customers.

• Rebound in YoY performance amid low base effect. On yoy basis, revenue up 20.4% yoy whilst profit returned to the black with PBT of RM13.2m (vs LBT of RM18.8m a year ago). This was driven by low base as longer lockdown during first Movement Control Order (MCO 1.0) as all of its outlets were closed in full capacity for longer period. However, gain was partly offset by higher effective tax rate of 20.8% as compared to 10.6% during 4QFY20.

• Dismal FY21 due to unprecedented spike in Covid-19 cases. 12MFY21’s PBT margin was down 0.7ppts yoy on the back of unexciting revenue which eased 24% yoy, bogged down by Covid-19 pandemic. Retail outlets were closed for operations for months and affected the Group’s topline and bottomline for the whole year. On top of that, sales plummeted as the Group had to close 6 brands outlet stores, 2 Padini concept stores and 3 free standing stores in order to adjust their cost structure.

• Back to business envisaged for FY22F. We deem the Group to resume their business in FY22 as stores are now allowed to re-open since mid-Aug’21. Given faster vaccination rate in our nation (61.9% of population fully vaccinated; 82.2% of population with at least one dose as at 28 th Aug) at this juncture, we expect our nation to reach herd immunity latest by 1HCY22 given rapid vaccination roll-out. We also believe their brick-and mortar sales return back to normal in the near term underpinned by consumer confidence in visiting the stores with more people being vaccinated. The Group will continue to emphasize on cost optimization strategy such as better control costs, optimizing working capital, preserving cash and streamlining operations to minimize the impact.

• 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 to our FY22F core earnings forecast of RM78.9m (+45.8% yoy growth). We would also like to introduce our FY23F core earnings forecast of RM91.7m (+16.3% yoy growth).

Valuation & Recommendation

• Upgrade to HOLD from SELL with a higher target price of RM2.90 (RM2.40 previously) after we assign higher PE to reflect better business prospects in the near terms. Our valuation is now pegged at 24.2x FY22F PE (20x previously) with an EPS of 12sen, slightly higher than its 5-year average mean PE of 22.4x.

Source: JF Apex Securities Research - 30 Aug 2021