Results

• Padini Holdings Berhad reported revenue of RM476.3 million in its 4QFY23, reflecting a 4.2% increase compared to the previous quarter but a 1.0% decrease year on year. Additionally, net earnings for the quarter reached RM57.3 million, marking a significant 32.0% increase quarter-onquarter but a notable 26.1% decline compared to the same quarter in the previous year.

• Exceeding our expectations - Padini's full year FY23 net earnings amounted to RM222.7 million, surpassing ours and the street's forecasts, accounting for 113% and 103% respectively. Additionally, 12 months’ revenue reached RM1.8 billion, representing 116% of our forecast and 106% of the street's forecast.

• Quarter on Quarter Growth – During the quarter, there was a notable uptick in both revenue and PBT, at RM19.1 million (+4.2% qoq) and RM18.4 million (+31.7%) respectively. This surge in the current quarter's performance was primarily driven by festive periods like Hari Raya and mid-term school holidays. The profit for the current quarter was lifted by higher sales and, in part, the absence of employee bonus which was paid out in the previous quarter.

• Year on Year Decline - The Group reported a decrease in revenue and profit before tax by RM4.9 million (-1.0% yoy) and RM25.8 million (-25.2% yoy) respectively. The drop in revenue was primarily due to reduced sales in existing stores. Notably, the SSSG in the current quarter was 2.2% lower. Other than lower revenue, the decline in PBT can also be attributed to rising staff cost and incidental expenses.

• Increased Borrowings - Total borrowings for FY23 experienced a substantial rise, reaching RM4.0 million, marking a significant 900% increase compared to the previous fiscal year, FY22.

• Dividend Declared - The management announced its first interim dividend of 2.5 sen per share for FY24. Our full-year DPS projection for FY24 stands at 12.6 sen, assuming a DPR of 40%, resulting in a yield of 3.2%. This is a potential increase of 9.6% from FY23’s 11.5 sen dividend per share.

Comments

• Looking to the future, we hold a positive outlook on Padini's growth. We anticipate that the Group's sales will remain buoyed by various festive seasons, although potential dampening effects on consumer spending behaviour and purchasing power should be considered. It is crucial to acknowledge that supply chain challenges, material costs, and freight charges persist as threats to the Group, as emphasized by the management, however, have stabilized.

Earnings Outlook / Revision

• We have revised our FY24f net earnings forecast upwards to RM223.8 million, reflecting an 8.4% increase from our previous estimates. Additionally, we have adjusted the revenue projection to RM1.88 billion, signifying an 11.5% increase from our previous estimates. These adjustments are based on our anticipation of further store expansion for Padini, supported by various festive seasons.

• However, it's worth noting that we have not aggressively forecasted net profit due to the prevailing challenges such as a decrease in purchasing power and rising inflation. Additionally, we are introducing our FY25f net earnings forecast of RM243.6 million, representing an 8.9% year-on-year increase, along with a revenue projection of RM1.97 billion, reflecting a year on year growth of 4.9%.

Valuation and Recommendation

• Maintain BUY call on Padini Holdings Berhad, with a new target price of RM4.67 (+5% from the previous target price of RM4.44), following our earnings upgrade. Our target price represents an 18% upside from the current price of RM3.95.

• Our valuation is now pegged at 12.6x PE multiple (previously 14.8x) with FY25F EPS of 37.0 sen. The ascribed PE multiple is higher than its 1Y mean PE multiple of 10.8x and also aligns with its 1Y +1Std Dev PE multiple.

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

Source: JF Apex Securities Research - 28 Aug 2023