PADINI is upbeat on 2HFY23, anticipating the strong shopping footfall seen in most of its outlets during the recent Chinese New Year and the current school holidays extending into the coming Hari Raya Aidil Fitri. Its store expansion plans (a combination of Padini and Brands outlets), both locally and overseas, are progressing well while its warehousing automation is underway. We maintain our forecasts, TP of RM6.00 and OUTPERFORM call.

The key takeaways from PADINI’s post-results briefing are as follows:

1. PADINI is upbeat on 2HFY23, anticipating the strong footfall in most of its outlets experienced during the recent Chinese New Year shopping period and the current school holidays, to be repeated in the coming Hari Raya AidilFitri. The return of international tourists will also drive PADINI’s sales (but its system does not capture such details).

2. In FY23, PADINI will open less than 10 stores in Malaysia (a combination of Padini and Brands outlets, one in Cambodia and 2-3 in Thailand (only Vincci in Thailand). Our conservative assumption of an addition of five stores pales by comparison.

3. PADINI is highly conscious that it will not be spared cost pressures stemming from higher electricity tariff as well as rising labour cost. We believe this could be mitigated by raising prices and avoiding unnecessary price markdowns. Our forecasts assume a net margin of c.13% in FY23, which will be a slight improvement over 11.7% in FY22 driven by a better product mix (with more high-margin products).

4. In terms of digital transformation, PADINI is implementing automation in its warehouse.

Forecasts. Maintained.

We maintain our TP of RM6.00 based on 15x FY24F 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).

We like PADINI for: (i) it being a beneficiary of consumers replenishing their wardrobes for their return to offices and schools, and social activities, (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. Maintain OUTPERFORM.

Risks to our call include: (i) competition from existing and new players, (ii) sustained high inflation eventually erode consumers’ spending power, stalling consumption including apparel and footwear, and (iii) rising textile prices.

Source: Kenanga Research - 1 Mar 2023