Kenanga reiterated its outperform recommendation on Padini with a target price of RM4.
The research house noted that the second quarter of the financial year is historically Padini's second strongest quarter, accounting for 30-35% of full-year earnings.
Since November 2019, Padini has embarked on a two-year collaboration with Disney to sell Disney-theme apparels, which is expected to improve gross profit margins due to their higher pricing as compared to other brands.
"Sales of these Disney lines have exceeded the target set by Disney itself within a short time frame and Padini expects to secure more Disney characters to diversify the collection.
"The Disney-theme apparels for the upcoming Hari Raya are already under production and are expected to sell well especially during the festivity promotion," said Kenanga.
It added that the collaboration is in line with Padini's strategy to target above its comfortable gross profit margin of 40%, while maintaining the supply diversification of 70% from China, 25% from Malaysia amd 5% from other countries.
In terms of regional expansion, Padini's has been looking to increase its own-managed stores to control the stores' value, says Kenanga.
So far, these include a Brands Outlet store and two Padini stores in Cambodia, as well as the takeover of seven Vincci stores in Thailand.
Moving forward, Kenanga expects Padini to look towards Indonesia as its next reginal expansion target as the market accounted for the most footfall for Padini.
It noted that the Indonesian Vincci franchisee agreement will expire over the next two to three years, which may open up the possibility of expansion.
The current Indonesian franchisee owns 14 Vincci stores in the market.
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