We came away from PADINI’s analyst briefing with the following key takeaways:

i) Revenue Remains Resilient in 4QFY24

ii) Margin Expects to Sustain for FY24

iii) The Net Cash Position Continues to be Healthy Reiterate Buy with a revised target price of RM4.70/share (previously: RM4.40/share) based on 15x CY25 EPS.

Revenue Remains Resilient in 4QFY24

To recap, 3QFY24 benefitted from the Chinese New Year (CNY) festivities, resulting in a 15% QoQ growth in revenue, reaching RM575.3mn. During this quarter, Padini closed 2 stores (FSS Vincci Jusco Cheras Selatan & 1 overseas own-managed store), leading to a net decrease in 2 stores, bringing the total to 152. Nevertheless, same store sales growth (SSG) increased by 19% QoQ due to the resilient sales and successful promotional campaign during CNY, which boosted Padini’s topline. Looking ahead, we expect the topline to remain resilient in 4QFY24 (April to June), as management indicated that the contribution of Hari Raya sales was minimal in 3QFY24, with a more significant impact expected in the upcoming quarter. According to management, fever than 5 new store openings are planned for 4QFY24.

Margin Expects to Sustain for FY24

Operational costs play a crucial role in the group’s margin. In 3QFY24, gross profit margin and net profit were 35.3% (-2.8%-pts QoQ) and 7% (-3.6%-pts QoQ), respectively. Margin deterioration in 3QFY24 was mainly due to the depletion of old inventory, a regular occurrence due to the fast-moving goods industry, where SKUs are frequently aligned with market trends. Additionally, Padini’s bonus payout typically disbursed in the third quarter based on historical performance, was another key factor leading to margin depression in this quarter. Moving forward, the group aims to optimise operational costs to sustain a gross margin of approximately 35% to 37%.

The Net Cash Position Continues to Be Healthy

As of 3QFY24, Padini’s net cash amounted to RM803.7mn (+8.1% QoQ). The group has consistently paid out at least 11.50sen/share per annum, with special dividend typically occurring in fourth quarter, except for FY20-22 when operations were impacted by the Covid-19 outbreak. Currently, the group plans to maintain its payout of 11.50sen/share in FY24. Therefore, the strong net cash will be retained within the group. The robust cash flows will be utilised for future operations, including covering product costs, staff costs and administrative expenses.

Impact

We revised FY24-26 earnings upwards by 5.3% to 7.8%, as we adjust our sales assumption for upwards by 15%.

Valuation

Reiterate our Buy recommendation on PADINI with a revised target price of RM4.70/share (previously RM4.40/share), based on 15x CY25 EPS.

Source: TA Research - 4 Jun 2024