PETALING JAYA: Padini Holdings Bhd is expected to see gradual recovery in the second half of 2020, according to a Kenanga Research report.
The research unit said Padini’s recent fourth quarter results for financial year 2020 (4Q20) had indicated the onset of a gradual recovery in footfalls post-movement control order (MCO), albeit with still tepid demand from tourist-concentrated city stores (such as Suria KLCC and Fahrenheit 88), offset by positive recovery from suburban malls in Shah Alam, Penang and Johor.
Revenue in 1Q21 is expected to be already supported by Hari Raya Aidiladha sales, while 2Q21 is expected to be boosted by the usual festivities sales.
Kenanga Research said Padini’s gross profit margin can recover to 38% (from 31% in 4Q20) with a better promotion strategy and lower inventory loss with the full quarter sales.
Some of the MCO rental rebates will be recognised starting July 2020, after reaching better agreement with landlords (estimated half already recognised in June 2020).
On the other hand, Padini plans to close a few stores which have reached the end of their tenancy agreements and are currently under monthly renewals.
Also, Padini maintains the supply production diversification of 70% from China, 25% from Malaysia and 5% from other countries (such as Bangladesh, India, Cambodia and South Korea).
Padini’s online presence is still less than 1% of total revenue (less than RM1mil) and it is currently looking for a suitable tie-up to better tap into the “new normal” consumer behaviour.
Kenanga Research pointed out: “Padini has a resilient business model that focuses on the value-for-money segment through its Brands Outlet (BO) stores.”
Padini also does not open more than 10 outlets in the local market to streamline cost allocation towards strategic locations, and is expanding regionally through own-managed stores to strategically control stores’ value which include Cambodia (one BO and two Padini stores) and Thailand (seven Vincci stores).
Meanwhile, a MIDF Research report said the worst is over for Padini but recovery is dependent on revival in consumer spending.
As the recovery MCO is extended till year-end, MIDF Research expects store capacity to remain limited.
The fashion and fashion accessories segment is expected to be one of the most negatively affected sub-segment for retail sales, according to data compiled by the Retail Group Malaysia.
Also, Padini may hold back from paying dividend until further business clarity is seen, in order to preserve cashflow.
The MIDF Research report maintains an eight sen dividend payout by Padini for now.
Kenanga Research has upgraded its target price for Padini to RM2.90 (from RM2.15), while MIDF Research maintains its target price at RM2.09.
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