Result

• Padini Holdings Berhad (Padini) registered a net profit of RM32.6m during 3QFY22, which slumped by 46.5% from 2QFY22. Revenue stood at RM329.3m, plummeting 22.9% qoq. On the other hand, YoY earnings surged by 167.2% whilst revenue inched up 25.3%.

• As for 9MFY22, the Group achieved net profit of RM76.6m, rising in a smaller scale of 2.2% yoy.

• Above our and market estimate. Padini’s 9MFY22 net profit of RM76.6m is above our in-house estimate (92.4%) and market expectation (81.1%). The higher-than-anticipated actual earnings were resulted from higherthan-expected Profit before Tax (PBT) margin.

• Dividend declared. The Group has declared a third interim dividend of 5.0sen/share which brings the total dividend payment of 10sen/share as year to date. This makes up 100% from our dividend payout assumption for FY22. As a result, we raise our DPS estimates for FY22F and FY23F to 11.5sen/share. This converts into dividend yield of 3.6% per annum.

Comment

• Higher base and bonus payout dragged earnings. Revenue dropped 22.9% qoq mainly due to comparison with higher base in 2QFY2022. The higher base in 2QFY2022 was driven by festive season sales such as Christmas, Chinese New Year and year-end school holidays. We view revenue of RM329.3m as relatively healthy amid high inflationary pressure condition but it is still far from its pre-pandemic level. In addition, Profit before Tax (PBT) margin slumped by 6.4ppts accordingly resulted from bonus payout for financial year 2022.

• Sturdy YoY as all outlets were allowed to operate at full capacity. Revenue and PBT jumped 25.3% yoy and 149.4% yoy respectively. This was mainly due to outlets were able to operate in full capacity during this period. Effective tax rate was within 26%-28% mainly due to the higher non-deductible expenses. On the following quarter, we foresee sales to continue to register outstanding growth as we expect to see higher footfall in its outlet amid resumption of business activities in full capacity starting from 1st April 2022.

• 9MFY22 sees encouraging earnings as COVID-19 transition into endemic. Cumulatively, 9M revenue elevated 2.2% yoy thanks to efficient vaccine roll-out boosted consumer confidence to shop in physical store. While higher footfall translates into higher sales, PBT rose 69% yoy along the same line. This was due to right-sizing of workforce to optimise the cost efficiency and wages subsidy received during FY2022.

• Encouraging outlook ahead. Looking forward, the Group remains optimistic on its business outlook banking on relaxation of COVID-19 restriction nationwide by the Malaysian Government on 1st April 2022. Nonetheless, the Group is wary that supply chain disruption, continuously hike in material and freight costs as well as high inflationary pressure will potentially hurt its earnings. With these long persisting issues, the management is strike to provide value for money products and implement measures to control costs, optimize working capital and streamline its operations to minimise the impact. Overall, we deem positive on business recovery of Padini given consumer footfall resuming as a result COVID-19 transition into endemic. Moreover, we also believe their brick-andmortar sales could back to normal underpinned by consumer confidence in visiting the stores as the Malaysian Government relaxed the COVID-19 restrictions.

• Downside risks include: (a) Stiff retail competition especially in apparel and footwear industry, (b) Strengthening of Chinese Renminbi against Ringgit Malaysia, and (c) Higher operational costs

Earnings Outlook/Revision

• In view of lower-than-expected earnings forecast, we increase our FY22F and FY23F core earnings forecast by 18.9% and 15.5% to RM98.6m and RM111.3m respectively as we envisage higher foot traffic in the outlets in the following quarters will convert into higher sales.

Valuation & Recommendation

• Maintain BUY call with an unchanged target price of RM3.50 following our earnings upgrade. Our valuation is now pegged at 20.7x FY23F PE with an EPS of 16.9sen (12.6sen previously) which is lower than its 5-year average PE of 28.2x as we factor in higher inflationary pressure which could consequently affect consumer spending behavior.

Source: JF Apex Securities Research - 30 May 2022