Result

Padini Holdings Berhad (Padini) posted a core net loss of RM16.7m during 1QFY22 as compared to core net profit of RM10.5m in 4QFY21 and RM18.9m in 1QFY21. On the same note, revenue slid 61.2% qoq and 73.8% yoy.

Substantially below estimates. Padini’s 3MFY22 core net loss of RM16.7m is substantially below our in-house and market expectation. The disappointing result was dented by sluggish sales performance resulted from stores closure during re-imposition of full movement control order (FMCO).

Dividend declared. The Group has declared a first interim dividend of 2.5 sen/share which makes up 50% from our dividend payout assumption for FY22.

Comment

Sluggish QoQ resulted from FMCO. Revenue tumbled 61.2% qoq on the back loss before tax (LBT) of RM20.8m. Sales were unable to take place during this period as retail stores were fully closed during lockdown period since 1st June until 17th August. Most of the outlets were started re-open progressively on 18th August during implementation of National Recovery Phase (NRP). Besides, PBT margin down by 31.8ppts qoq resulted from higher operating cost, we believe. On the following quarter, we expect sales to pick up as business were fully operated and massive traffic in their outlets given year end sales season coupled with Christmas festive.

Dismal YoY performance amid low base effect. Revenue depleted 73.8% yoy while PBT margin was down by 34.6ppts yoy following full closure of retail stores as compared to a year ago as retail stare were allowed to open as lockdown were eased and business were back as usual. During this period, effective tax rate were lower due to the utilisation of unabsorbed tax losses.

Envisaging promising outlook ahead. Looking forward, the Group remains optimistic on the business outlook banking on higher vaccination rate on our nation and will continue emphasize on cost optimization strategy such as better control costs, optimizing working capital, preserving cash and streamlining operations to minimize the impact. Nevertheless, the management remain wary on some challenges such as potential supply chain disruption, increase in material costs, hike in freight charges and other inflation related issues. Overall, we are positive on business recovery for Padini given current easing lockdown as business was back to normal currently with some standard operating measure to adhere. Besides, we also believe their brick-and mortar sales could back to normal underpinned by consumer confidence in visiting the stores with more people being vaccinated.

Downside risks include: (a) Stiff retail competition especially in apparel and footwear industry, (b) Strengthening of Chinese Renminbi against Ringgit Malaysia, (c) Higher operational costs, and (d) Prolonged Covid-19 outbreaks.

Earnings Outlook/Revision

We slash our FY22F and FY23F core earnings forecast by 14.7% and 12.9% respectively to RM67.3m and RM79.9m respectively to factor in lower than expected sales and margin.

Valuation & Recommendation 

Maintained HOLD with a lower target price of RM2.80 (RM2.90 previously) following our earnings downgrade. Our valuation is now pegged at 27.5x FY22F PE with an EPS of 10.2sen (12sen previously) higher than its 5-year average mean PE of 22.6x.

Source: JF Apex Securities Research - 29 Nov 2021