We came away from PADINI’s analyst briefing with the following key takeaways:

i) FY24 Results Review

ii) Expansion Plans and Capex Allocation

iii) Cautiously Optimistic Outlook for FY25

Maintain Buy with a lower TP of RM4.30/share, based on CY25 PER of 15x.

FY24 Results Review

Padini’s FY24 core net profit declined by 32.6% YoY to RM154.4mn, despite a 5.3% YoY increase in revenue to RM1.9bn. Management attributed the weaker performance primarily to higher operating expenses, including staff and distributions costs. In 4QFY24, same-store-sales growth (SSSG) dropped by 10.7% QoQ due to seasonality and weaker consumer sentiments. Meanwhile, the average pocket size for this quarter was relatively lower, at RM90-100/transaction, compared to previous quarters, due to the absence of festivities sales. However, this is aligned with management’s guidance of approximately RM100/transaction under normal circumstances.

Expansion Plans and Capex Allocation

In FY24, Padini opened 10 new stores, the majority of which were Padini Concept Store (PCS). Concurrently, the group also closed 5 non-performing stores, primarily Free-Standing Store (FSS). As a result, the net increase in stores for FY24 was 5, compared to 4 in FY23. Management has indicated that the number of non-profitable Padini stores are now less than 5. For FY25, we are targeting a net increase of 5 stores, which will bring the total number of stores to 158.

Separately, the group has allocated approximately RM50-100mn in Capex for new warehouses, aimed at reducing logistics costs and enhancing operational efficiency. One of the new logistic hubs will be located in Johor, as the Southern region is the second largest contributor to the group’s topline. Additionally, we foresee strong growth in Johor due to its proximity to Singapore and higher tourist arrivals.

Cautiously Optimistic Outlook for FY25

Driven by the higher civil servant salary increases of 7%-15% and the opening of new stores, we expect revenue growth of 8.6% to RM2.1bn in FY25. On the other hand, management has lowered its GP margin estimate to approximately 36%-38% from 38%-40% previously. Consequently, our forecasted GP margin for FY25 is 36.5% (vs 36.3% in FY24) and in line with the latest guidance. As a result, we project an adjusted EPS growth of 13.8% YoY to 26.7 sen in FY25. In terms of asset quality, Padini’s net cash amounted to RM791.0mn in FY24 (+30.7% YoY). For FY25, we project a strong net cash position of RM916.1mn to be retained within the group. Accordingly, we expect a constant dividend payout of 11.50sen/share in FY25, consistent with FY24

Impact

Incorporating the FY24 results, we have revised Padini’s FY25/FY26 core earnings forecasts to RM175.8mn/RM198.9mn from RM198.5mn/RM213.9mn. Additionally, we are introducing our FY27 core earnings forecast at RM214.6mn.

Valuation

Following the earnings revision, we have lowered our TP to RM4.30/share (previously RM4.70/share) based on 15x CY25 EPS. Reiterate BUY.

Source: TA Research - 30 Aug 2024