The prolonged lockdown continued to affect PADINI with FY21 top-line falling 24% dragged by 4QFY21 which fell 20%. Given that the majority of its outlets are in the Klang Valley, we see a weak 1HFY22 but expect a robust 2HFY22 on account of a successful vaccination roll-out. TP is lowered to RM3.20 with call downgraded to MARKET PERFORM.

Below expectations. FY21 PATAMI of RM54m came in below expectations at 93%/89% of our/market estimates, with its earnings still unable to regain grounds from the prolonged lockdown and subsequent FMCO. DPS of 2.5 sen was declared (implying a payout of 30%) which is disappointing, below estimate.

YoY, FY21 revenue of RM1.03b came in lower constricting 24%, due to the prolonged lockdown and subsequent FMCO. All outlets were closed during the FMCO (June). March quarter spending was impacted as CNY21 celebrations were more subdued due to travel restrictions compared to CNY20. On a positive note, margins were relatively stable throughout due to better cost control, with gross profit margin only posting a 1ppt decline to 38% (pre-pandemic: 39% to 40%). PATAMI of RM54m saw a decline of 28%.

QoQ, similar issues with YoY review, as top-line and bottom-line shrank 20% and 14%, respectively to RM210m and RM11m, respectively. The steep fall is also compounded by a higher base as the preceding quarter saw forward buying for the Aidil Fitri celebrations on heightened fear of further imposition of lockdown. Margins mostly saw improvement (GP; +1ppt, EBITDA; 4ppt) testament to better cost control. Lower ETR (21%) mitigated the decline in PATAMI (-14%).

Challenging 1HFY22. As herd immunity is expected by October, we expect weak sales ahead in the immediate term. Most of Padini outlets have just opened in mid–August but the majority of its outlets are in the Klang Valley (44%) which is still under Phase 1 of the NRP. GP margins are likely to see downside risks ahead on volatile freight charges as (most of its goods are imported with 50% coming from China).

Post results, we slashed our FY22E earnings by 20% to RM95m on a weak 1H coupled with downside risks on margins.

Downgrade with a lower TP of RM3.20 (from RM3.60) pegged to FY22E PER of 22x (5-Year mean). We believe this is fair premised on: (i) anticipation for a robust recovery in 2HFY22 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. Downgrade to MARKET PERFORM given the downside risks of margins and unattractive dividend yields.

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

Source: Kenanga Research - 30 Aug 2021