PADINI’s FY22 results beat expectations on a better product mix. We expect PADINI to continue to perform well in coming quarters driven by strong festive shopping (Christmas and Chinese New Year) and the return of tourists. We raise our FY23F earnings by 3%, lift our TP by 5% to RM4.30 (from RM4.10) and maintain our OUTPERFORM call.

Above expectations. 1QFY23 PATAMI beat expectations, coming in at 33% and 43% of our full-year forecast and the full-year consensus estimate, respectively. The variation against our forecast came largely from better product margin skewed toward high-margin products such as those under the brands of Vincci and Seed.

YoY, 1QFY23 revenue more than quadrupled as pandemic restrictions were lifted and all its outlets were reopened for longer operating hours. PATAMI returned to the black from a loss a year ago, also helped by a better product mix as mentioned.

Outlook. We acknowledge that high inflation is eating into consumer spending power. However, we still expect strong sales performance from PADINI in coming quarters driven by strong festive shopping (Christmas, Chinese New Year) as the pandemic comes to an end and the return of tourists on reopened international borders.

Forecasts. We increase our FY23F earnings by 3% to reflect a better product mix that is skewed towards high-margin products.

We like PADINI for: (i) it being a beneficiary of consumers replenishing their wardrobes on their return to offices and schools, and social functions, (ii) the strong spending power of its primary target customers (i.e. M40 group) given their healthy household balance sheets, and (iii) its strong net cash position enabling it to purchase inventory ahead of price hikes and potential supply disruptions.

We lift our TP by 5% to RM4.30 (from RM4.10) based on 18x FY23F PER which is in line with the sector’s forward PER. There is no change to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

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 - 30 Nov 2022