Review

• Padini’s 1QFY20 adjusted earnings of RM20.7mn (+7.2% YoY) accounted for 11% and 14% of our and consensus full-year estimates respectively. This was within our expectation as we expected seasonally weak 1st

quarter following Hari Raya festival sales that fall in June (1st quarter accounted for 11-20% of full-year earnings for recent 3 years, a period when Hari Raya falls in June).

• The board declared a second interim single-tier dividend of 2.5sen/share.

• 1QFY20 revenue increased by 2.5% YoY to RM338.0mn driven by stronger sales from existing stores (1QFY20 SSSG: +1% YoY). Adjusted PBT was flat at RM28.0mn, as adoption of MFRS16 resulted in a RM4.8mn drag to PBT (excluding the impact of MFRS16, adjusted PBT would have increased by 17.7% YoY).

• Sequentially, 1QFY20 revenue declined by 34.6% QoQ and adjusted PBT reduced by 63.0% QoQ due to high base effect from Hari Raya festival and nationwide five-day special sales promotion in 4QFY19 alongside adoption of MFRS16.

Impact

• We make no changes to our earnings forecasts at this juncture. Note that an analyst briefing is expected to be conducted in early-December.

Outlook

• While acknowledging the rise in cost pressures, management remains confident of its business prospects and aims to optimise the group’s cost structure by focusing on bigger multi-brand stores, rejigging merchandises, and increasing direct dealings with suppliers.

• Meanwhile, we see a potential relieve in the cost of goods given that CNYMYR has dipped to 0.5940MYR/CNY (dipped 1.7% since 1st July 2019). Should CNY continue to depreciate against ringgit, we believe there could be a favourable pass-through of savings from suppliers.

Valuation

• Maintain Buy with unchanged target price of RM4.60/share (based on 16xCY20 EPS).

Source: TA Research - 28 Nov 2019