The prolonged lockdown continued to affect PADINI, with 9MFY21 earnings falling below estimates which we view as just a blip. Looking forward, we raised our TP to RM3.60 as we reiterate our view that the group remain poised for further recovery with the expanding vaccine roll-outs. Further, given its solid cash position, we maintain OUTPERFORM.

Below expectations. 9MFY21 CNP of RM44m came in below expectations at 56%/53% of our/market estimates as earnings failed to regain grounds on the prolonged lockdowns. DPS of 2.5 sen was in line.

Better cost control. YoY, 9MFY21 revenue of RM819m came in lower constricting 31%, no thanks to weaker sales attributable to lower retail footfall due to the imposition of further movement control orders. Bottom-line shrank 53% to RM44m given that gross profit margin was still under pressure contracting 3ppt to 38% while EBITDA margin was stable at 21% given better cost control.

QoQ, while 3Q generally is the weakest quarter, revenue saw a 7% upside to RM263m due to more sales generated during the Chinese New Year festive season. We suspect the upside could also have come from forward buying for the Aidil Fitri celebrations as fear of further imposition of lockdown heightened. In tandem with higher sales, Opex saw a 20% jump, resulting in EBITDA margin constricting by 3ppt to 19%. On a positive note, gross profit margin remained fairly constant at 37%. A lower ETR (-5ppt to 28%) saw CNP improving 14% to RM12m.

Recovery on track for FY22. The resurgence of Covid-19 cases and prevailing movement control order look to spell further uncertainties for the group’s recovery path, given that retail footfall will now take longer to return to pre-Covid-19 level. That said 4Q earnings are looking risky given the prolonged travel restrictions and shorter operating hours. However, with expanded vaccination roll-outs in 2H 2021 and the herd immunity likely to be achieved in 1H 2022, we expect strong sales in 2Q 2022 and 4Q 2022. This is on account of pent-up demand supported by the group’s strong brand equity locally through its focus on value-for money segment (via Brands Outlet and Padini).

Post results, we slashed our FY21E earnings by 25% to RM58m and upgrade our FY22E earnings by 7% premised on a successful vaccine programme by then.

Reiterate OUTPERFORM with higher TP of RM3.60 (from RM3.50) applying FY22E PER of 20x (5-year mean). We believe this is fair premised on: (i) anticipation for a robust recovery in FY22 with expanded vaccination rollout by then, (ii) solid net cash position of c.RM548m as of this quarter, which would allow the group to weather through these challenging times, and (iii) potential higher dividend payout given its strong cash position.

Risks to our call: (i) further imposition of lockdown throughout 2021 and (ii) higher-than-expected operating expenses.

Source: Kenanga Research - 27 May 2021