Review

• Padini Holdings Berhad’s (PADINI)’s 3QFY24 results came in within expectation. Core profit rose marginally by 2.4% YoY to RM46.1mn, in tandem with improved revenue of 25.8% YoY to RM575.3mn. The better performance was driven by robust sales during the Chinese New Year and school holidays. However, 3QFY24 core profit declined by 20.3% QoQ, primarily due to bonus payout during the quarter under review.

• Cumulatively, 9MFY24 core earnings dropped 22.9% YoY to RM131.5mn despite an 8.8% YoY increase in revenue. The core profit of RM131.5mn account for 78% of our and consensus’ full year estimate.

• The weaker year-to-date performance can be attributed to higher input cost (+14.2% YoY), administrative expenses (+7.6% YoY) and selling distribution cost (+23.7% YoY) incurred in FY24. These factors led to a decrease in the GP margin by 3%-pts YoY to 36.5%.

• The group has declared a fourth interim dividend and a special dividend totalling 4.0 sen/share, bringing the YTD DPS to 11.5sen/share, which is consistent with FY23.

Impact

• No changes to our earnings forecast.

Outlook

• In general, the retail sector continues to face challenges stemming from escalating costs, trade tensions, and inflationary pressures, all of which could erode purchasing power. On a positive note, we expect 4QFY24 performance to remain satisfactory, driven by the affordable product offerings and ongoing efforts to optimise costs.

• Meanwhile, we reckon that the group will enhance its dividend pay-out ratio to c.44% for FY24 while maintaining its net cash position (Net cash stood at RM803.7mn in 3QFY24, representing an 8.1% QoQ improvement)

Valuation

• We reiterate Buy on the stock with an unchanged target price of RM4.40/share, based on CY25 PER of 15x.

Source: TA Research - 31 May 2024