Results

• Padini Holdings Berhad’s posted 3QFY23 net earnings of RM43.4m (-40.6% qoq, +33.1% yoy), while revenue stood at RM457.2 (-10.3% qoq, +38.8% yoy).

• Exceeding estimates. 9M23 net earnings at RM165.4m entails 96.4%/79.7% of our/street full year estimates, while revenue for 9M23 at RM1.3b accounted 91.5%/81.0% of our/street forecast, which is beyond the forecasted figure.

• Sturdy YoY despite lower QoQ. In 3QFY23, revenue showed significant improvement compared to the same period in 2022, with a growth rate of 38.8%. This growth can be attributed to increased consumer spending and the ongoing recovery from the COVID-19 pandemic, including higher operating capacity. As a result, both revenue and net profit for 9M23 experienced a surge of 60.6% and 115.9% respectively, amounting to RM1.3b and RM165.4m.

• Dismal QoQ. Revenue for the current quarter experienced a decline of 10.3% QoQ to RM457.2m. Similarly, PBT and PAT also witnessed a significant drop of 40.2% and 40.6%, reaching RM58.1m and RM43.4m respectively. The higher results achieved in the previous quarter (2Q23) were supported by various festive seasons such as Christmas and Chinese New Year, as well as yearend school holidays. On the other hand, the lower profit in the current quarter can be attributed to factors such as a decrease in sales volume, bonus payouts, and salary adjustments.

• Total debt to total equity of Padini stood at 0.5x. When compared to its peers in the related industries, Padini has a higher gearing ratio than others.

• The cash balance currently stands at RM627.5 million, representing a decrease of 22.4% from the year-end level of FY22.

• Dividend declared. Padini has declared a 4th interim dividend of 2.5 sen per share and a special dividend of 1.5 sen per share, resulting in a total dividend payout of 11.5 sen per share up until the third quarter of 2023. This total dividend payout has exceeded our previous full-year DPS estimate of 8.5 sen for FY23F. Consequently, we have revised our payout estimates to 45%, which would result in a full-year DPS of 13.5 sen for FY23F, based on its EPS of 30 sen, yielding at 3.6%.

Comments

• Looking ahead, we are cautiously optimistic on Padini's growth. We believe that the sales of the Group will continue to be supported by various festive seasons, although there may be dampening effects on consumer spending behaviour and purchasing power. However, it is important to note that supply chain issues, material costs, and freight charges remain as threats to the Group, as highlighted by the management.

Earnings Outlook / Revision

• We raise our net profit estimates to RM197.4m (+15.0%) and RM206.4m (+13.9%) in FY23F and FY24F, respectively. Similarly, we upgrade our topline to RM1.6b and RM1.7b for FY23F and FY24F respectively. This is underpinned by the strong performance of Padini in the current quarter which exceeded our estimates. Also, we anticipate higher sales incoming for the next quarter resulting from Hari Raya Aidilfitri and holidays.

Valuation and Recommendation

• Maintained a BUY call for Padini Holdings Berhad, with a higher target price of RM4.44 (18% higher than the previous target price of RM3.75), following our earnings upgrade.

• Our valuation is now pegged at 14.8x PE multiple with FY23F EPS of 30.0 sen. The ascribed PE multiple is higher than its mean PE of 12.3x but lower than its 1Y +1Std Dev PE.

• Considering the given PE multiple, we believe that Padini is able to i) secure adequate sales from the festive seasons and value-for-money products, ii) achieve growth from their expansion plans i.e. new outlets opening.

Source: JF Apex Securities Research - 30 May 2023