PADINI’s results were in line with the reopening of the economy posting a bumper 2QFY22. Moving forward we expect surging improvement due to incoming festivities ahead. No change to our FY22E numbers but TP is raised to RM3.80 as we move our valuations to FY23E. Reiterate OUTPERFORM.

In line. 1HFY22 PATAMI of RM44m accounts for 46%/52% of our/consensus estimates on account of earnings resurgence in 2QFY22 as the economy reopened. A 2nd interim DPS of 2.5 sen was declared (as expected) making DPS declared so far at 5.0 sen (in line).

YoY, 1HFY22 top-line saw a decline of 9% to RM556.7m on account of a weak 1QFY22 due to the FMCO mitigated by earnings resurgence in 2QFY22. Gross margin saw slight erosion (140bps to 37%) due to supply chain issues but offset by better product mix. EBITDA margin saw a 280bps improvement to 25% on improved sales volume (in 2QFY22) and prudent management in 1QFY22. Improved margins saw PATAMI ending at RM44.0m (+40%).

QoQ, coming from a low base, top-line surged >100% to RM427.2m as the economy reopened. Recap that the previous quarter saw 62 days of business closure. Margins (GP and EBITDA) improved on better sales volumes and product mix).

Resurging demand expected. Since the economy has gradually reopened amid high vaccination rate, we expect strong sales in 3QFY22 and 4QFY22 due to the two major festivities; Chinese New Year (just concluded) and the coming Hari Raya. However, margins remained at risk due to supply chain issues and inflationary pressure.

Post results, our FY22E/FY23E earnings at RM95m remained unchanged with impact of the Prosperity Tax likely to be minimal given the layout of numerous business units in its corporate structure.

OUTPERFORM. Our TP is raised to RM3.80 (from RM3.20) as we moved our valuations to FY23E pegged to its 5-year mean PER of 21.2x (with a 0.25SD below mean attached). We believe business activity will resume normally ahead as the nation moves towards an endemic phase but we are cognizant of volatile supply chain issues. Reiterate OUTPERFROM on: (i) the reopening of economy, and (ii) solid net cash of RM723m (or RM1.10/share) – implying another potential bumper dividend payout (FY14/FY15 at 83%/82%).

Risks to our call: (i) another wave of the pandemic and (ii) higher than-expected operating expenses.

Source: Kenanga Research - 24 Feb 2022