• Maintain HOLD (TP: RM3.60). Padini’s FY24 net profit of RM146.6mn (-34.2% YoY) was below both ours and consensus expectations, accounting for 88.7% and 88.0% respectively. The company declared a 1st interim DPS of 2.5sen (FY23: 2.5sen). Although Padini’s FY24 revenue increased by +5.3% YoY, net profit declined by -34.2% YoY, mainly due to higher input cost amplified with the rising staff costs. In line with weaker-than-expected results, we have revised our FY25 earnings forecast down by -12%, factoring in lower margin assumptions and housekeeping adjustments. We maintain a HOLD call on Padini with a lower TP of RM3.60 (from RM3.80), based on unchanged PER of 14x pegged to FY25F EPS of 25.5sen.

• Key highlights. In 4QFY24, both revenue and net profit declined by -4.4% YoY and -54.1% YoY respectively, mainly due to a -10.7% YoY drop in same-stores sales growth, higher input costs and the increased staff expenses that strained earnings. On a QoQ basis, revenue declined by +20.9% QoQ to RM455.2mn, reflecting the high base comparison from elevated sales during festivities season, such as Chinese New Year and pre-Hari Raya Aidilfitri, in 3QFY24. Similarly, net profit declined by -35.1% QoQ to RM26.3mn, driven by lower sales and higher finance cost.

• Earnings Revision. We have revised our FY25F earnings forecast downwards by -12%, factoring in higher finance costs, lower margin assumptions, and housekeeping adjustments.

• Outlook. We remain cautiously optimistic on Padini’s outlook. The company is expected to benefit from higher sales volumes due to the potential increases in consumer spending, driven by the civil servant wage hike and EPF Account 3 withdrawal scheme, especially considering Padini’s average basket size of RM100. The downside risk to our forecast includes higher-than-expected operating costs, which could further compress profit margins (i.e., labour, distribution, and raw material costs). We continue to like Padini for its i) valuefor-money products and ii) healthy balance sheet (1.20sen net cash/ share as at 4QFY24). Accumulate on dips.

Source: BIMB Securities Research - 28 Aug 2024