Padini Holdings Berhad - Lukewarm quarter
Wed, 28-Aug-2024 07:23 am
by Chelsea Chew • Apex Research

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PADINI (7052)

Target Price (RM)

3.51

Recommendation

Hold

Summary

PADINI 4QFY24 core net profit of RM22.8m (-60.8% yoy and -50.3% qoq) came below ours and consensus expectations, constituting 89% and 91% of forecast respectively, impacted by higher depreciation and staff costs along with decline in GP margin from 39% to 36%.

Kept our earnings forecast unchanged for FY25F and introduced FY26F core net profit at RM202.7m (+7.1% yoy) on gradual improvement in SSSG.

Downgrade our recommendation to HOLD, with lower target price of RM3.51, based on lower P/E multiple of 11.4x for the FY26F EPS of 31.0 sen.

 

Results Review

  • Results review. 4QFY24 core net profit fell -60.8% yoy and -50.3% qoq to RM22.8m, mainly due to higher depreciation and staff costs along with decline in gross profit margin from 39% to 36%. Revenue for the quarter declined -4.4% yoy and -20.9% qoq to RM455.2m. A first interim dividend of 2.5 sen per share, payable on 13 September 2024, was declared. 

  • Below expectations. 12MFY24 core net profit of RM153.4m came below expectations, accounting to 89% and 91% of ours and consensus expectations. Key deviation is mainly due to higher-than-expected depreciation charges.

  • Operations Highlights. During this quarter, the decrease in the top line was mainly dragged by decline in the Same Store Sales Growth (SSSG), which fell by -10.7% yoy, which is seasonal effect. The decline in the bottom line was primarily due to a lower GP margin and higher staff costs, stemmed from higher recruitment.

  • Industry Highlights. The 2Q24 report on Malaysia's GDP shows that retail sales grew by +7.9% yoy in June 2024, moderating from the +8.7% yoy growth in May 2024. Hence, we reckon retail sales to remain lukewarm in the coming months. Nevertheless, the normalisation of retail sales growth is expected to be mitigated by the Malaysian government announcement on 16 August 2024 over a phased salary adjustment for civil servants: 15% for those in professional roles and 7% for top management, starting 1 December 2024.

  • Outlook. Amid rising geopolitical tensions, material costs and freight charges may continue to remain elevated. Although reported topline met our expectations, we anticipate that retail sales might soften in the upcoming quarter, as it is expected to be another quiet quarter for the Group. However, we foresee that the activewear and loungewear categories could see a elevate in sales.

  • Valuation. We are keeping our earnings forecast unchanged for FY25F, as the reported results met expectations. We are introducing a FY26F earnings forecast of RM202.7m. However, we are downgrading our recommendation on PADINI to HOLD from BUY and reducing the target price to RM3.51. This is based on a lower P/E multiple of 11.4x for the FY26F EPS of 31.0 sen. We applied a 20% discount to PADINI’s valuation compared to the peer average P/E of 14.2 due to retail sales challenges.

  • Risk. Exposed to foreign exchange risk with potential short-term increases in material costs and freight charges.

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