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Padini Holdings CONSUMER PADINI HOLDINGS (PAD MK EQUITY, PDNI.KL) 4 Mar 2021 Navigating through uncertainties Company report HOLD AmInvestment Bank (Maintained) www.amequities.com.my 03-2036 2372 Rationale for report: Company update Investment Highlights Price RM2.88 Fair Value RM3.09 52-week High/Low RM3.17/RM1.78 We maintain our HOLD call on Padini Holdings (Padini) with an unchanged fair value of RM3.09/share with no Key Changes adjustment for ESG rating based on a 3-star rating as Fair value EPS appraised by us (Exhibit 3). Our fair value for Padini is based on a PE of 14x FY22F EPS. YE to Jun FY20 FY21F FY22F FY23F Padini hosted a results briefing yesterday and here are the Revenue (RM mil) 1,354.7 1,361.5 1,674.7 1,758.5 key takeaways: Core net profit (RM mil) 75.2 88.7 145.4 151.4 FD Core EPS (sen) 11.4 13.5 22.1 23.0 1. In terms of revenue composition, Padini saw its sales FD Core EPS growth (%) (53.1) 18.0 63.9 4.1 from its overseas businesses improve to 3.6% of Consensus Net Profit (RM mil) - 89.2 123.5 146.9 revenue in 1HFY21 from 3.2% in 1HFY20. This was DPS (sen) 7.5 6.7 11.0 11.5 PE (x) 25.8 21.9 13.3 12.8 mainly due to positive contribution from its four EV/EBITDA (x) 7.0 6.5 5.1 4.8 stores in Cambodia. The group’s Thailand operations Div yield (%) - - - - are still making losses. ROE (%) 10.0 11.3 17.2 16.4 Net Gearing (%) nm nm nm nm 2. E-commerce sales for the same period contributed 0.8% of total revenue in 1HFY21, vs 0.3% in the same Stock and Financial Data period last year. While we view this as a step in the right direction, the contribution is still small, and Shares Outstanding (million) 657.9 Market Cap (RM mil) 1,940.8 Padini is still tweaking its strategy through social Book Value (RM/share) 1.16 media channels to further boost sales. P/BV (x) 2.5 ROE (%) 10.0 3. We understand that there were bottlenecks in the Net Gearing (%) - system when online orders spiked in the run-up to Chinese New Year, resulting in certain orders being Major Shareholders Yong Pang Chaun (43.7%) KWAP (8.2%) shipped out late. Sales from outlets still contribute the EPF (5.7%) bulk, at about 93.5% of revenue. Free Float 44.1 Avg Daily Value (RM mil) 3.0 4. In 2QFY21, Padini closed four stores in total – two Brand Outlet (BO) stores (Damen Mall, Gateway KLIA Price performance 3mth 6mth 12mth 2), one free-standing Vincci store (FSS; First World Plaza) and one Padini Concept Store (PCS; Gateway Absolute (%) 7.3 27.2 (2.3) Relative (%) 9.2 24.5 (8.7) KLIA 2). 5. As at end-2QFY21, Padini has 121 stores consisting 7.0 2,000 of: BO at 49 stores; PCS at 47 stores; and FSS at 25 1,800 6.0 stores. In 2QFY21, most store closures are in areas 1,600 with typically high tourist footfalls (Genting & KLIA). 5.0 1,400 1,200 4.0 6. With the weak sales in a historically strong quarter, 1,000 Padini recorded an SSSG of -51% in 2QFY21 versus 3.0 800 the same period in the preceding year. With its low 2.0 600 sales, we believe that there will be an inventory write- 400 down for clothing with CNY-specific designs. 1.0 200 7. Similar to 1QFY21, no dividends were announced and 0.0 0 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Padini prefers to preserve cash and bank balances and wait for an improvement in economic and PAD MK FBMKLCI Index business conditions before committing to a dividend payout. As such, we do not expect any dividend in 3QFY21. We anticipate 3QFY21 to be impacted by the MCO 2.0 and sales to remain weak. No dividend guidance was given for FY21F. Padini Holdings 4 Mar 2021 8. In the medium to long term, Padini is looking to improve and enhance its e-commerce channels as it considers these complementary and not substitutes to its outlets. E-commerce would also provide an omni-channel experience for its customers. In expanding into other geographical areas, Padini believes it needs to establish an online and physical store at the same time and hence Padini is strengthening its e-commerce channels in Malaysia first. Locally, Padini sees the market consolidation as a potential acquisitive opportunity as the other retailers do not have the luxury of a strong net cash position to weather the storm of the pandemic. Moving forward, we believe that Padini is well-positioned to reap the benefits of a cyclical recovery with an expected increase in consumer spending in 2021F. Padini’s low price point and value-for-money product offerings appeal to the mass market, which will underpin the group’s recovery as it navigates through a challenging business environment. EXHIBIT 1: PB BAND CHART EXHIBIT 2: PE BAND CHART 7.00 40.00 6.00 35.00 30.00 5.00 +1δ 25.00 +1δ 4.00 Avg 20.00 Avg 3.00 15.00 -1δ -1δ 2.00 10.00 1.00 5.00 0.00 0.00 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 EXHIBIT 3: ESG RATING Overall ★ ★ ★ Zero-carbon emission initiatives ★ ★ ★ Input sourcing & procurement ★ ★ ★ Packaging & waste control ★ ★ ★ Supply chain auditing ★ ★ ★ ★ Corporate social responsibility ★ ★ ★ ★ Staff welfare ★ ★ ★ Anti-bribery/corruption pledge ★ ★ ★ Equality/diversity in organisation ★ ★ ★ ★ We accord a discount/premium of -6%, -3%, 0%, +3% and +6% on fundamental fair value based on the overall ESG rating as appraised by us, from 1-star to 5-star AmInvestment Bank Bhd 2 Padini Holdings 4 Mar 2021 EXHIBIT 4: FINANCIAL DATA Income Statement (RMmil, YE 30 Jun) FY19 FY20 FY21F FY22F FY23F Revenue 1,783.0 1,354.7 1,361.5 1,674.7 1,758.5 EBITDA 264.1 277.6 287.8 358.4 362.2 Depreciation/Amortisation (43.0) (144.2) (140.6) (135.2) (132.6) Operating income (EBIT) 221.1 133.4 147.1 223.2 229.6 Other income & associates - - - - - Net interest (1.8) (26.1) (25.6) (24.1) (22.3) Exceptional items - - - - - Pretax profit 219.3 107.3 121.5 199.2 207.3 Taxation (59.1) (32.1) (32.8) (53.8) (56.0) Minorities/pref dividends - - - - - Net profit 160.2 75.2 88.7 145.4 151.4 Core net profit 160.2 75.2 88.7 145.4 151.4 Balance Sheet (RMmil, YE 30 Jun) FY19 FY20 FY21F FY22F FY23F Fixed assets 132.0 103.0 92.7 83.0 71.4 Intangible assets 5.7 513.5 490.2 453.0 418.6 Other long-term assets 9.2 14.2 68.6 95.5 126.9 Total non-current assets 146.9 630.7 651.5 631.4 616.8 Cash & equivalent 472.0 441.5 470.4 481.0 523.8 Stock - - - - - Trade debtors 55.6 46.1 51.1 62.9 66.0 Other current assets 278.8 276.2 276.1 337.5 356.0 Total current assets 806.5 763.8 797.7 881.4 945.8 Trade creditors 166.7 85.4 126.1 154.3 162.8 Short-term borrowings 21.4 1.6 1.6 1.6 1.6 Other current liabilities 15.9 102.5 95.5 95.5 95.5 Total current liabilities 204.0 189.6 223.2 251.4 260.0 Long-term borrowings 2.5 430.5 407.1 369.9 335.5 Other long-term liabilities 6.6 8.6 8.6 8.6 8.6 Total long-term liabilities 9.0 439.1 415.8 378.6 344.2 Shareholders’ funds 740.3 765.8 810.1 882.8 958.5 Minority interests - - - - - BV/share (RM) 1.13 1.16 1.23 1.34 1.46 Cash Flow (RMmil, YE 30 Jun) FY19 FY20 FY21F FY22F FY23F Pretax profit 219.3 107.3 121.5 199.2 207.3 Depreciation/Amortisation 43.0 144.2 140.6 135.2 132.6 Net change in working capital (73.2) (83.3) 35.7 (44.9) (13.1) Others (55.5) (60.9) 5.8 (41.2) (37.1) Cash flow from operations 133.5 107.3 303.6 248.3 289.7 Capital expenditure (29.0) (7.8) (30.0) (30.0) (30.0) Net investments & sale of fixed assets - - - - 2.0 Others - - - - 1.0 Cash flow from investing (29.0) (7.8) (30.0) (30.0) (27.0) Debt raised/(repaid) - (19.4) (19.4) (19.4) (19.4) Equity raised/(repaid) - - 1.0 2.0 3.0 Dividends paid (75.7) (75.7) (49.3) (44.4) (72.7) Others 9.2 11.8 (14.0) (10.7) (6.9) Cash flow from financing (66.5) (83.2) (81.8) (72.5) (95.0) Net cash flow 38.0 16.2 191.9 145.8 167.7 Net cash/(debt) b/f - - - - - Net cash/(debt) c/f 38.0 16.2 191.9 145.8 167.7 Key Ratios (YE 30 Jun) FY19 FY20 FY21F FY22F FY23F Revenue growth (%) 6.2 (24.0) 0.5 23.0 5.0 EBITDA growth (%) (6.8) 5.1 3.7 24.5 1.1 Pretax margin (%) 12.3 7.9 8.9 11.9 11.8 Net profit margin (%) 9.0 5.5 6.5 8.7 8.6 Interest cover (x) 120.4 5.1 5.8 9.3 10.3 Effective tax rate (%) 27.0 30.0 27.0 27.0 27.0 Dividend payout (%) 47.2 65.6 50.0 50.0 50.0 Debtors turnover (days) 11 14 13 12 13 Stock turnover (days) - - - - - Creditors turnover (days) 39 34 28 31 33 Source: Company, AmInvestment Bank Bhd estimates AmInvestment Bank Bhd 3 Padini Holdings 4 Mar 2021 DISCLOSURE AND DISCLAIMER This report is prepared for information purposes only and it is issued by AmInvestment Bank Berhad (“AmInvestment”) without regard to your individual financial circumstances and objectives.
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