Padini Holdings Bhd’s fourth-quarter and full-year FY26 earnings came in below expectations, weighed down by weaker post-festive sales and higher structural operating costs, according to a research report by MBSB.
MBSB Research maintained its BUY recommendation on Padini but lowered its target price to RM1.63 from RM2.13, following the weaker-than-expected results.
The research house cut its FY27 and FY28 earnings forecasts by 19% and 20%, respectively, while reducing its target price-to-earnings ratio (PER) assumption to 13 times from 15 times, closer to Padini’s three-year historical mean.
Rolling forward its valuation to FY27 forecast earnings per share of 12.5 sen, MBSB arrived at the revised target price of RM1.63.
Despite the downgrade, MBSB said Padini’s depressed share price offered an attractive entry point, supported by the retailer’s value-for-money positioning, strong net cash balance sheet and attractive dividend profile.
Padini recorded 4QFY26 revenue of RM365.9 million, down 6.7% year-on-year (YoY) and 41.4% quarter-on-quarter (QoQ), while core net profit after tax and minority interest (PATANCI) fell into a RM6.5 million loss, compared with a profit in the corresponding quarter.
For FY26, revenue declined 3.2% YoY to RM1.88 billion, while core PATANCI dropped 24.4% to RM127.8 million.
The full-year earnings represented 91% of MBSB’s previous forecast and 86% of the consensus estimate.
MBSB said the earnings shortfall was mainly attributable to higher operating costs, increased depreciation and the imposition of service tax on rental and other expenses following the expansion of the service tax scope from July 2025.
Padini declared a 3.8 sen per share dividend for 4QFY26, bringing its total FY26 dividend per share to 9.2 sen.
The weaker fourth-quarter performance was largely driven by the normalisation of sales following the stronger festive period in the preceding quarter.
Revenue declined 6.7% YoY in 4QFY26 and 41.4% QoQ, with the sequential decline reflecting the absence of heightened sales during Chinese New Year and Hari Raya in 3QFY26.
For the full year, revenue fell 3.2% as festive-driven demand in the third quarter was insufficient to offset weaker sales momentum in the other quarters.
Management continued to highlight a challenging retail environment, with consumer purchasing power being affected by rising living costs, trade tensions, inflation and interest-rate pressures.
MBSB said Padini’s value-for-money proposition remained relevant as consumers became increasingly price-sensitive, although near-term discretionary spending remained under pressure.
Padini’s gross profit fell 10.2% YoY and 47.8% QoQ to RM130.8 million in 4QFY26, while gross profit margin narrowed to 35.7%, down 1.4 percentage points YoY and 4.4 percentage points QoQ.
EBIT plunged to RM300,000 from RM19.5 million a year earlier and RM89.6 million in the preceding quarter.
The sharp deterioration was attributed to lower sales and higher cost intensity, including increased depreciation, lease-related expenses and service tax on rental and other expenses.
Selling and distribution costs increased 4.2% YoY to RM115.9 million, while administrative expenses rose 1.5% to RM25.7 million.
As a result, Padini recorded the RM6.5 million core net loss for the quarter, while its FY26 core PATANCI margin narrowed to 6.8% from 8.7% in FY25.
MBSB maintained a cautiously constructive view of Padini’s medium-term prospects, citing its affordable product positioning, diversified brand portfolio and strong balance sheet.
The research house expects the group’s value-oriented proposition to remain relevant amid heightened consumer price sensitivity, while continued cost control, working capital optimisation, cash preservation and operational streamlining could provide some earnings support.
However, it cautioned that the near-term retail environment remains challenging due to weak discretionary purchasing power, rising operating costs and margin compression.
MBSB said Padini’s recent share price sell-down had made its valuation more attractive, with the stock offering support from its dividend yield and potential earnings recovery from a low base.
It therefore retained its BUY call despite lowering the target price to RM1.63.
