PADINI is optimistic of continued top line growth in 2QFY23 driven by: (i) a reasonably robust Hari Raya Adifil-fitri shopping period, (ii) sustained footfall in its outlets, and (iii) stores expansion. Though feeling the pinch from positive rental reversions and rising administrative cost, this is cushioned by the stabilising cost of apparel and footwear. Hence, we maintain our forecasts, TP of RM5.80 and OUTPERFORM call.

We came away from PADINI’s post-results briefing feeling assured of its near-term prospects. The key takeaways are as follows:

1. PADINI is mindful that the “revenge spending” by consumers on apparel will eventually wane. However, it is still optimistic over continued top line growth in 2QFY23 driven by: (i) a reasonably good Hari Raya Adifil-fitri shopping period and sustained footfall in its outlets thereafter, and (ii) stores expansion.

2. In FY23, PADINI will open 2-3 stores in Malaysia and two stores in Cambodia. Meanwhile, its expansion plan in Thailand will be on hold due to the highly competitive apparel retailing industry there. PADINI guided that it will continue to increase its outlets (a combination of Padini and Brands Outlets). We conservatively assumed an addition of 3 stores in FY24.

3. PADINI is feeling the pinch from positive rental reversions and rising administrative cost. However, the good news is that the cost of apparel and footwear has stabilised. It is confident that it can keep its gross profit margin at c.39% which is in line with our assumption.

Forecasts. Maintained.

We maintain our TP of RM5.80 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 - 2 Jun 2023