15 March 2021
PADINI Holdings Bhd’s sales are expected to recover when the Movement Control Order (MCO) is fully lifted and international borders are potentially reopened in the fourth quarter of 2021 (4Q21).
TA Securities Holdings Bhd analyst Jeff Lye Zhen Xiong in a recent report said the group has shut down several underperforming outlets and is looking to write down inventory in the short term, as gathered during an analyst briefing.
As such, Lye said the research house cut Padini’s financial year 2021 (FY21), FY22 and FY23 earnings forecasts by 24.4%, 12.4% and 13.5% respectively.
“We also roll over the valuation base year to the calendar year 2022 (CY22) to capture the post-pandemic earnings recovery. All in, we keep our target price unchanged at RM3.20 per share and maintain ‘Buy’,” he said.
Lye said consumer spending and footfall would recover in CY21 corresponding to the commencement of the vaccination programme.
He added that the reopening of international borders in 4Q21 would help further drive sales higher, especially for stores located in tourist hotspots.
Overall, he said Padini is expected to grow stronger post-Covid-19 underpinned by the management’s agility in crisis management and the company’s strong net cash of around RM500 million.
He said Padini has a solid balance sheet and potential earnings recovery that should correspond to the commencement of the vaccination programme in Malaysia.
Lye said there were four additional store closures in 2Q21,
including two Brand Outlets stores located in Damen Mall and Gateway Kuala Lumpur International Airport 2 (KLIA2), one Padini Concept Store in Gateway KLIA2 and one Vincci single-branded free-standing store.
This meant that Padini’s total stores in Malaysia has declined to 121 outlets, comprising 49 Brands Outlets, 47 Padini Concept Stores and 25 single-branded free-standing stores.
“Management views the re-organisation of the store portfolio by shutting down underperforming stores as an important task
to improve the group’s future profitability. Furthermore, the group is actively negotiating with respective landlords for better terms and arrangements for their leases.
“The group has recognised rental rebates of circa RM4 million during the first half of FY21 and we opine Padini still enjoys the rebates next quarter,” he said.
Padini’s 2Q21 adjusted profit before tax dropped 44.2% quarter-on-quarter to RM17.9 million from RM32.1 million in the preceding quarter due to reinstatement of Conditional MCO in 2Q21 compared to Recovery MCO in 1Q21.
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