Result

• Padini Holdings Berhad (Padini) registered a net profit of RM77.5m during 4QFY22, which inched up 137.7% qoq and 638.1% yoy. Revenue stood at RM481.2m, having improved 46.1% qoq and 129.4% yoy. As for 12MFY22, the Group achieved net profit of RM154.1m, rising 184.8% yoy.

• Above our and market estimate. Padini’s 12MFY22 net profit of RM154.1m is above our in-house estimate (156.3%) and market expectation (134.7%). The higher-than-anticipated actual earnings were resulted from festivity-induced higher sales during 4QFY22.

• Festive induced stronger quarter. Revenue and PBT surged by 46.1% qoq and 143.9% qoq thanks to festive Hari Raya sales and mid-year school holidays that convert into higher footfall traffic in its outlets.

• Margins improved. Cumulatively, 12MFY22 Gross Profit (GP) margin and PBT margin improved by 0.6ppts yoy and 8.4ppts yoy respectively. Improvement in GP margin was mainly due to the Group’s effort in applying cost-plus mechanism to pass on some cost to its customers. On the other hand, improvement in PBT margin is dedicated to its continuous move to optimize cost efficiency by performing constant workforce right-sizing as well as wages subsidy received during the quarter.

• Dividend declared. The Group has declared a first interim dividend of 2.5sen/share for FY23. This makes up 29.4% of our dividend payout assumption for FY23.

Comment

• Stores expansion. We were guided by the Management that they were in talks with shopping mall operators to open 4 new outlets (2 Padini Concept Stores and 2 Brands Outlet) by CY2023. We foresee these new outlets will translate into higher sales in FY2023 and FY2024. The Management also mentioned that they will closely monitor financial performance of each outlet and will shut down those with lower net profit margin.

• 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 committed 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 the business recovery of Padini given consumer footfall resuming as a result COVID-19 transition into endemic.

• 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 FY23F earnings forecast by 49% to RM165.9m as we envisage additional outlets in the following quarters will convert into significant higher sales. Also, we introduce our FY24F earnings forecast of RM 181.5m (9.4% growth).

Valuation & Recommendation

• Maintain BUY call with a higher target price of RM3.63 (previously RM3.50) following our earnings upgrade. Our valuation is now pegged at 14.4x FY23F PE with an EPS of 25.2 sen (16.9 sen previously) which is lower than its 5-year average PE of 28x as we factor in higher inflationary pressure which could consequently affect consumer spending behavior.

Source: JF Apex Securities Research - 29 Aug 2022