Investment Highlights
- We maintain our BUY call on Padini with a same fair value of RM4.67/share, based on an unchanged FY23F PE of 16x – at parity to its 10-year average. This reflects an unchanged neutral ESG rating of 3 stars.
- We came away from an analyst briefing recently with these key takeaways:
- To recap, Padini’s 1HFY23 earnings of RM122mil surged 2.8x YoY on strong performance across all operating segments, as all outlets were operating at full capacity vs. a year ago.
- Improvement in 1HFY23 margin was due to an upward adjustment in selling price coupled with higher sales volume. Management expects the high margin to normalise in 2HFY23 on rising operating expenses, including increased staff and electricity costs. However, such impact is deemed manageable given Padini’s prudent cost measures.
- In terms of inventory, the supply chain issues in the China factory have been resolved. As the current inventory days of 87 (3 months) represent a healthy level, management does not foresee any major supply chain issues in FY23.
- On the new store front, Padini would rather focus on offering quality and value-for-money products instead of opening new stores aggressively to sustain sales. Management guided that sales are now better than pre-pandemic levels despite a lower store count of 133 vs. 143 back then.
- Moving forward, management expects 3QFY23 and 4QFY23 performance to continue to be strong, albeit might be slightly softer post-festivities. We reckon a broad-base return of tourists especially from China could sustain footfalls in its outlets. Also, the cash assistance from the recently announced budget could bolster consumers’ spending power.
- The group currently trades at a bargain FY23F PE of 12.3x, lower than its 10-year average of 16x while offering a decent yield of 3.7%.
Source: AmInvest Research - 1 Mar 2023
