KEY INVESTMENT HIGHLIGHTS

• FY20 earnings of RM75.2m were below expectations

• 4QFY20 recorded the first quarterly losses since listing

• Covid-19 changed the game

• Earnings forecast cut by -19.7%/-9.2% for FY21F/FY22F

• Maintain NEUTRAL with an adjusted TP of RM2.09

FY20 earnings of RM75.2m were below expectations. Padini Holdings Bhd’s (Padini) FY20 earnings disappointed making up 70.9% of ours and 71.6% of consensus’ full year estimates. The lower than expected earnings and sales can be attributed to the harder than expected impact the Covid-19 pandemic has on its business model, which is predominantly brick-and-mortar. No dividend was announced during the quarter leaving cumulative DPS of 7.5sen for FY20. We had anticipated DPS of 8.0 sen for the year.

4QFY20 recorded the first quarterly losses since listing. 4QFY20 fell into a net loss of -RM16.8m compared to a net profit of RM54.4m a year ago. This comes on the back of sales that plunged by -66.3%yoy to RM174.2m. The much lower revenue recorded for the quarter was mainly due to the full impact of the movement control order (MCO) for the full month of April and gradual reopening of stores in early May. During the initial phase of reopening, trying on of clothing items in stores was prohibited, which may have also deterred consumers from buying in-stores. During the quarters, the company has also written down and written off inventories amounting to RM7.9m, representing 61.7% of the amount of inventory written down in FY20.

Quarter-on-quarter, revenue dropped by -49.8% as the previous quarter only recorded slightly over one week of halt in operations. Compared to the immediate preceding quarter, gross profit margin has declined by -7.7ppt qoq to 31.1% We suspect that one of the reasons may be the heavy promotion to lure consumers into purchasing again.

Covid-19 changed the game. The pandemic has further accelerated the shift to digitalisation from brick-and-mortar when it comes to shopping for apparels and footwear. Padini, which has been predominantly relying on in-store sales might have lost out to online fashion platforms during this period. However, not all online fashion platforms are profitable due to heavy promotions, attractive exchange/refund programs and free delivery in order to attract customers. We believe that the brick-and-mortar formats will still be relevant in the long-run as the physical shopping experience is different as consumers can touch and try out the products

Source: MIDF Research - 27 Aug 2020