Padini's earnings growth to resume beyond near-term weakness

KUALA LUMPUR: Padini Bhd could be looking forward to earnings growth on the back of its value-for-money offerings and the closure of underperforming outlets, despite the near-term weakness brought about by the recent resurgence of Covid-19.

RHB Research, which has a "buy" call on the stock, raised its earnings assumption due to the lower risk of further store closures.

Its target price was raised to RM3.50 from RM3.25, which reflects a FY22 forecast price-earnings of 13.6x, which is about the five-year average.

"We believe current price levels are attractive, and foresee the potential for valuations to be re-rated back to mean or above when investors rotate into cyclical sectors more meaningfully.

"Essentially, the recovery trope is still intact despite the recent resurgence in cases – as vaccination progress is underway – as well as the fact that the re-imposition of movement restrictions is being done in a targeted manner as opposed to a blanket nationwide lockdown," said RHB in a note.

The research house rolled forward its valuations to FY22 as it believes investors should look beyond the near-term earnings risk arising from the spike in infection rates of late and focus on the eventual cyclical recovery.
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