Result

• Padini Holdings Berhad (Padini) registered a core net profit of RM60.8m during 2QFY22 as compared to core net loss of RM16.7m in 1QFY22 and core net profit of RM9.5m in 2QFY21. Besides, revenue stood at RM427.2m, soaring 424.8% qoq and 73.7% yoy.

• As for 1HFY22, the Group achieved core net profit of RM44.1m, which surged 55.1% yoy despite revenue slid, - 8.6% yoy.

• Above our estimate but within market. Padini’s 6MFY22 core net profit of RM44.7m is above our in-house estimate (65.6%) but within market expectation (52.1%). The higher-than-expected result was spurred by higher rental rebates and wages subsidy received during this period.

• Dividend declared. The Group has declared a second interim dividend of 2.5sen/share which brings total dividend payment of 5sen/share as year to date. This makes up 50% from our dividend payout assumption for FY22.

Comment

• QoQ earnings recovery as FMCO lifted. Revenue jumped 424.8% qoq amid rebound in PBT (RM81.8m vs LBT of RM20.8m) during 2QFY22. This was spurred by re-opening of all of its outlets as Full Movement Control Order (FMCO) was lifted during 15 August 2021. Additionally, sales also buoyed by festive season such as Christmas season and year-end school holidays. Upon that, PBT margin also inched up by double-digit point to 44.7ppts qoq. On the following quarter, we expect sales to register extraordinary growth as businesses were fully operated and massive traffic in their outlets spurred by Chinese New Year festive season.

• Sturdy YoY sales given higher footfall. Revenue and PBT jumped 73.7% yoy and 414.5% yoy respectively during this period. As most our population has received vaccination, shopping mall traffic has increased as consumers are now willing or confident to shop at retail stores, thus increasing their brick-and-mortar sales. During this period, effective tax rate was within 26%-29% mainly due to the higher non-deductible expenses.

• Encouraging earnings during 1HFY22 despite sluggish revenue. Cumulatively, 1H PBT escalated 38.3% yoy given higher rental rebate received as well as wages subsidy. Nevertheless, revenue tumbled 8.6% yoy due to higher base as FMCO imposed during this period, thus leading to majority of retail stores were temporary closed at full capacity from 1 June 2021 until 18 August 2021.

• Envisaging better 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 remains 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 of Padini given current easing lockdown as business is back to normal currently with some standard operating measures to be adhered. Besides, we also believe their brick-and-mortar sales could back to normal underpinned by consumer confidence in visiting the stores with more people are 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

• In view of lower-than-expected earnings forecast, we increase our FY22F and FY23F core earnings forecast by 23.2% and 20.7% to RM82.9m and RM96.4m respectively to factor in higher-thanexpected sales.

Valuation & Recommendation

• Upgrade to BUY from HOLD with a higher target price of RM3.50 (RM2.80 previously) following our earnings upgrade. Our valuation is now pegged at 27.8x FY22F PE with an EPS of 12.6sen (10.2sen previously) which is lower than its 5-year average PE of 30.1x.

Source: JF Apex Securities Research - 24 Feb 2022