Review

• Padini Holdings Berhad’s (PADINI) 1HFY24 core earnings of RM85.4mn (- 31.9% YoY) came in within ours and consensus estimates at 51% and 50%, respectively.

• The group declared its second interim dividend of 2.5sen/share (1QFY24: 2.5sen/share), bringing its YTD dividend to 5.0sen/share (1HFY23: 5.0sen/share) aligned with 1HFY23.

• QoQ, 2QFY24 core profit surged 109.2% to RM57.8mn in tandem with rise in revenue of 28.8% to RM500.1mn. The better performance in this quarter was attributed to the stronger sales during year-end and festive season (Christmas).

• YoY, 2QFY24 core earnings dropped 26.2% YoY while revenue saw a marginal 1.8% decrease. The decline was mainly driven by a higher effective tax rate of 25.1%, up from 24.8% in 2QFY23 (+0.4pts YoY), due to higher non-deductible expenses incurred. 1HFY24 core profit lowered by 31.9% while its revenue remained flat at RM888mn. The weaker YoY performance was due to the higher expenses (staff cost) incurred in 1HFY24, leading to a decrease in GP margin of 2.1pts YoY to 37.2%.

Impact

• We maintain our earnings forecast as this juncture, pending analyst briefing on 1 March.

Outlook

• We expect the 2HFY24 to remain resilient due to Chinese New Year in February and Hari Raya in April, which will boost sales at all Padini’s outlets.

• Meanwhile, we reckon the group to sustain its dividend pay-out ratio of c.34% for FY24 while maintaining its net cash position (Net cash stood at RM743.8mn in 2QFY24, representing QoQ improvement of 18.9%).

Valuation

• Maintain Buy with a target price of RM 4.40/share based on 15x CY24 EPS.

Source: TA Research - 28 Feb 2024