MIDF Research have just attended Padini’s virtual briefing and remain neutral on its outlook in the near term. The key takeaway gathered by the research house is this: strong same-store sales growth in 1QFY23.
It is note-worthy that the same-store sales growth (SSSG) surged +421% yoy in 1QFY23 vs. 1QFY22. The SSSG turned positive from -76% year-on-year (yoy) in 1QFY22 versus 1QFY21 and -8% yoy in 1QFY21 vs. 1QFY20. The strong SSSG is mainly due to the strong recovery of sales after the reopening of economy and borders.
Unchanged number of stores in 1QFY23 as compared to 4QFY22. Padini opened one freestanding store (FSS) at Ampang Point to replace the FSS at Sunway Carnival. Hence this leads to the total number of stores remaining at 133 stores as of 1QFY23.
On yearly basis, the total number of stores increased from 130 stores in 1QFY22 to 133 stores, with two new brand outlet (BO) stores and one new freestanding store (FSS) contributing to the expansion in the overall number of sales.
Better inventory turnover ratio. Padini reported a higher inventory turnover ratio of 83 days in 1QFY23 from 81 days in 4QFY22. This was mainly due to lower sales amid lack of festive celebrations during the quarter.
Moving forward, the group expects the inventory level to sustain at a level between 3 to 4 months. This is to ensure sufficient stocks to fulfill demand and prevent customers from switching to competitors due to a shortage of stocks.
MIDF has reiterated its NEUTRAL call on Padini with an unchanged target price (TP) of RM3.50. Post briefing, the research house makes no changes to its earnings forecast. Its TP is based on a PER of 14.5x (pre-pandemic historical mean PE) peg to Padini’s FY23F EPS of 17.2sen/share.
However, the research house has stated its cautious stance on Padini’s FY23 outlook, owing to its discretionary nature, which makes it vulnerable to the current rising interest rate and inflationary environment as low-to-middle income consumers may turn cautious in spending on non-essential items.
Nevertheless, the research house firmly believes that Padini’s effective cost management through employee right-sizing will able to partially mitigate the impact of higher input costs.
Risks identified are lower-than-expected input cost, backed by normalized material prices and supply chain; and better-than-expected consumer sentiment.
