Padini Holdings Berhad - Better quarter but flattish growth
Wed, 26-Feb-2025 07:34 am
by Chelsea Chew • Apex Research

Counter

PADINI (7052)

Target Price (RM)

1.780

Recommendation

Buy

Summary

  • Padini’s (PAD) 2QFY25 core net profit of RM58.6m (+7.7% yoy, +183.0% qoq), bringing 6MFY25 CNP to RM79.3m (-2.1% yoy) came above our but within market’s expectations. Quarterly CNP was increased significantly in qoq but rose gradually at RM58.6m, bringing 1HFY25 CNP to RM79.3m.

  • The Group declared a third interim of 1.8 sen/share in 2QFY25 (2QFY25: 2.5 sen/share), bringing the YTD DPS to 7.7 sen/share (1HFY24: 8.1 sen/share).

  • Upgrade to BUY recommendation with a lower target price of RM1.78 (from RM2.09), pegged to 11.2x PE multiple on FY26F EPS of 15.8 sen, ascribed with three-star ESG rating.

 

Results above expectations. Padini’s (PAD) 6MFY25 core net profit (CNP) reached RM79.3m (-2.1% yoy), was slightly exceeded our expectations, achieving 59.0%, but aligned with the market’s expectations, with 55% of FY25F expectations.

 

Lower Dividend. The Group declared a third interim dividend of 1.8 sen in 2QFY25 (2QFY24: 2.5 sen), bringing the YTD DPS to 7.7 sen (2HFY24: 8.1 sen).

 

YoY. Excluding extraordinary items such as forex gains (RM5.7m) and fair value of unit trust gains (RM0.1m), 2QFY25 CNP experienced a slight growth at RM58.6m (+7.7% yoy). The growth was mainly driven by the improvement of gross profit margin from 38% to 40%.

 

YTD. For 6MFY25, CNP slipped 2.1% yoy to RM79.3m, due to higher OPEX occurring due to expansion in the number of outlets.

 

QoQ. CNP increased significantly by 183.0% qoq, lifted by improved sales volume from the year-end festive period.

 

Outlook. Looking ahead, higher personnel costs starting Feb 2025 will likely benefit PAD’s sales. Some of the newly opened stores, such as PCS TRX, PCS Batu Pahat and BO Portofino Queensbay, will also start to mature.

 

Earnings Revision. There are no changes to FY25F earnings despite the results exceeding our expectations, as we expect 2HFY25 numbers to be seasonally weaker. However, we have trimmed FY26F earnings by 13.4% due to flat growth for PAD and higher OPEX and depreciation expenses, as we anticipate opening of three to four additional stores domestically in FY25F-FY26F (YTD: 142 stores).

 

Valuation. After accounting for the enlarged share base for a 1-for-2 bonus issue exercised on 17 Dec 2024 and following the recent share price underperformance, we upgrade our rating to BUY (from HOLD) with a revised target price of RM1.78 (down from RM2.09). This target price is based on an 11.2x PE multiple applied to the FY26F EPS of 15.8 sen. It reflects a 0% ESG premium/discount, in line with the company's three-star ESG rating. The assigned PE multiple is set at -1 standard deviation of PAD's historical PE band. Despite the market’s negative reaction and the significant sell-off following the 1QFY25 results miss, we believe the stock is slightly undervalued at current levels.

 

Risk. (i) Forex volatility may cause short term increases in material cost and freight charges.

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