We remain positive on Padini Holdings Berhad (Padini) following the analyst briefing yesterday. The group's performance in the upcoming two quarters is expected to be supported by increased festive spending, an enhanced product range, and effective cost management.

Key Takeaways From the Briefing Include:

I) Review of 1QFY25 Results

Ii) Expansion Plans Are on Course

Iii) Outlook in FY25 Remains Optimistic

Maintain Buy With An Unchanged TP of RM4.30/share, Based on CY25 PER of 15x.

Review of 1QFY25 Results

In 1QFY25, core earnings decreased by 21.1% YoY to RM21.8mn, despite a 1.3% YoY increase in revenue to RM393.1mn. The management attributed the weaker performance mainly to higher total expenses of RM130mn in 1QFY25, compared to RM110mn in the previous year. The rise in overall expenses was primarily driven by higher staff costs, which amounted to approximately RM39.0mn (+12.6% YoY), and increased depreciation expenses of RM36.0mn (+20.9% YoY). The higher depreciation was largely due to significant renovations carried out last year, which impacted FY25. Meanwhile, the average pocket size for this quarter was approximately RM100/transaction, in line with management’s guidance of RM100/transaction, excluding festive spending.

Expansion Plans Are on Course

Padini opened 3 stores in 1QFY25, primarily Vincci Free Standing Stores (FSS) in East Malaysia. During the same period, the group closed 1 underperforming Padini Concept Store (PCS) in Bintulu. As a result, the net increase in stores for 1QFY25 was 2, compared to a net closure of 1 store in 1QFY24. This brought the total number of outlets to 155. Management noted that outlets in Mid Valley, Sunway Pyramid, IOI City Mall, TRX, and Aeon Tebrau City continued to perform well, with fewer than 10 stores operating at a loss. Regarding store expansion, the group remains on track to achieve a net increase of 5 stores by FY25, bringing the total store count to 158.

Padini opened 3 stores in 1QFY25, primarily Vincci Free Standing Stores (FSS) in East Malaysia. During the same period, the group closed 1 underperforming Padini Concept Store (PCS) in Bintulu. As a result, the net increase in stores for 1QFY25 was 2, compared to a net closure of 1 store in 1QFY24. This brought the total number of outlets to 155. Management noted that outlets in Mid Valley, Sunway Pyramid, IOI City Mall, TRX, and Aeon Tebrau City continued to perform well, with fewer than 10 stores operating at a loss. Regarding store expansion, the group remains on track to achieve a net increase of 5 stores by FY25, bringing the total store count to 158.

Outlook in FY25 Remains Optimistic

1QFY25 revenue accounted for 19% of our full-year forecast. Nonetheless, management observed no signs of weakening consumer spending, as transaction volumes increased despite a decline in average ticket size. Therefore, we remain optimistic about the full-year outlook, underpinned by: i) higher disposable income, which is expected to boost discretionary spending, ii) strong tourist arrivals driving sales at tourist-driven outlets, and iii) improvements in the product range aimed at attracting new customers. We maintain our revenue forecast of RM2.1bn for FY25 (+8.6% YoY). Despite the absence of festive sales and higher costs in 1QFY25, the group reported a GP margin of 35.6%, slightly below management’s guidance of 36%- 38%. However, we believe the group will continue to manage costs efficiently and improve operational effectiveness.

As of 1QFY25, the net cash position stood at RM765.9mn (+22.5% YoY). Looking ahead, we are confident that Padini will continue to reward its shareholders with a consistent dividend payout of 11.50sen/share in FY25, in line with FY24. This projection is supported by a projected strong net cash position of RM881.1mn in FY25.

Maintain Forecasts

There is no change to our earnings estimates. We believe the next two quarters will continue to perform well, driven by festive sales and the group's efforts in cost management.

Valuation

Maintain Buy on Padini with an unchanged TP of RM4.30/share based on 15x CY25 EPS.

Source: TA Research - 4 Dec 2024