KEY INVESTMENT HIGHLIGHTS

• 1QFY21 net profit of RM20.7m within expectation

• 1QFY21 net profit climbed 5.6%yoy to RM20.7m despite sales that fell by 8.1%yoy to RM310.7m

• Expect recovery in demand

• Maintain NEUTRAL with an adjusted TP of RM2.48

1QFY21 net profit of RM20.7m was largely within our and consensus’ estimates making up 27.6% and 18.7% of full year forecast respectively. No dividend was declared during the quarter compared to a 2.5 sen DPS announced in the same quarter a year ago.

1QFY21 net profit climbed 5.6%yoy to RM20.7m despite sales that fell by 8.1%yoy to RM310.7m. Padini Holdings’ (Padini) revenue for the first quarter was adversely impacted by Covid-19 but operating net profit margin has improved by 1.1ppt due to cost control measures as well as rental rebates, which resulted in savings. Gross profit margin for the quarter, however, slipped by 2.6ppt yoy.

Sequentially, 1QFY21 is much stronger than 4QFY20 due to the implementation of the Recovery Movement Control Order (RMCO), which started from June 10 and generated more sales compared to the MCO period in the immediate preceding quarter. As a result, revenue jumped by 78.4%qoq while net profit surged to RM20.7m from a net loss of RM16.8m. Gross profit margin improved by 6.8ppt qoq while operating profit margin improved by 17.4ppy qoq, resulting in the turn around. This is also helped by better cost structure and savings from the rental rebates.

Expect recovery in demand but it is yet to be seen if FY21 can match the performance prior to the pandemic. We expect further recovery in the coming quarters due to seasonal factors while the rate of recovery may be affected by consumer sentiment, which may fluctuate according to the Covid-19 situation in the country. We also expect potentially less rental rebates or benefits in the coming quarters. We understand that Padini has further accelerate its digital strategies, which included expanding sales avenues through online platforms and that may help to mitigate potentially softer sales in some of its brick-and-mortar outlets.

Maintain NEUTRAL with an adjusted TP of RM2.48. We make no changes to our earnings estimates as the results are deemed in-line. That said, we roll over our base year to FY22F. Our new TP is based on 13.5x PER pegged to FY21F EPS of 15.5 sen. The assigned PER multiple is unchanged and is -1.5SD below the group’s one-year average historical PER as we account for the challenging business condition and shift in consumer behaviour. Dividend yield is estimated at 3.0%

Source: MIDF Research - 30 Nov 2020