PADINI’s FY22 results beat expectations on a stronger-than-expected rebound in sales on the economy reopening and festivities-led shopping. Reflecting its optimism on sustained consumer spending, it reiterated its guidance for 4-5 new stores over the next 12 months. We upgrade our FY23F earnings by 28% (and introduce our FY24F numbers), raise our TP by 8% to RM4.10 (from RM3.80). Maintain OUTPERFORM.

Above expectations. FY22 PATAMI exceeded our forecast and consensus estimate by, 27% and 35%, respectively. The variation against our forecast came largely from a stronger-than-expected rebound in sales on the economy reopening and shopping ahead of festivities.

FY22 revenue grew by 28.1% driven by strong sales as consumers returned to the malls after the lifting of pandemic restrictions, as well as bumper spending ahead of festivities, particularly, Hari Raya Aidilfitri. PATAMI almost doubled, thanks to a product mix that was skewed towards high-margin products, improved overhead absorption (on a surge in sales) and a lower effective tax rate.

Outlook. Apart from sustained spending by the middle-income group (which is PADINI’s primary target customers), PADINI’s earnings going forward will also be driven by tourist dollars as international borders reopen. Nonetheless, we are mindful of the high inflation, which if not properly managed, could erode consumers’ spending power, stalling consumption including clothing.

Reflecting its optimism on sustained consumer spending, it reiterated its guidance for 4-5 new Brands Outlet and Padini stores over the next 12 months, with a capex outlay which we estimate at c.RM20m. These new stores will be the key drivers for growth in FY23.

Forecasts. We upgrade our FY23F earnings by 28% assuming the strong performance in FY22 will sustain over the near term (and introduce our FY24F numbers). We raise our TP by 8% to RM4.10 based on 18x FY23F PER (from RM3.80 based on 21x PER previously) to bring our valuation more in line with the sector’s forward PER. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) competition from existing and new players, (ii) high inflation eroding consumers’ spending power, stalling consumption including clothing, and (iii) movement restrictions due to pandemic reoccurrences.

Source: Kenanga Research - 29 Aug 2022