Padini records below expectation sales due to Covid-19 and MCO

RHB Research has reiterated its ‘buy’ call on Padini with a new TP of RM 3.03 from RM 3.10, with 11 percent upside and 3.6 percent  FY21F yield.

“Padini’s 9MFY20 results were below expectations as we underestimated the impact from the Covid-19 pandemic and Movement Control Order (MCO),” the research house said.

Padini’s 9MFY20 net profit of RM 92 million (-13 percent YoY) missed expectations, having only met 62 percent/71 percent of the research house’s forecasts.

The negative deviation is attributed to the worse-than-expected impact from the pandemic and the resulting MCO, which forced Padini to fully suspend the operation of all its stores.

“Post results, we trim FY20-22 earnings forecasts by 25 percent, 5 percent, and 9.2 percent respectively to pencil in lower sales growth and outlet expansion assumptions. Correspondingly, our DCF-driven TP drops to RM 3.03 from  RM 3.10. TP implies 12.5x P/E FY21F, close to -0.5 SD over the 5-year mean,” the research house said in its trading notes.

YoY, 9MFY20 sales declined by 6.8 percent, mainly dragged by
a lacklustre 3QFY20 (-26.8 percent YoY).

Soft earnings are likely to persist into 4QFY20 despite the Aidil Fitri festival, considering the longer MCO period and reduced festive shopping crowds.

“We expect earnings to recover in FY21, underpinned by the strategic presence of Padini stores and value-for-money product offerings. The latter could place Padini in a good position to capitalise on potential downtrading as a result of fragile consumer sentiment and weak spending power.”


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