MIDF Research is holding on to its neutral call on Padini Holdings Bhd with a revised target price of RM2.09 compared to RM2.61 of its previous target price.
The company’s fourth quarter ended June 30, 2020 (4Q20) recorded a staggering net loss of -RM16.8 mil compared to its previous net profit of RM54.4 mil, while sales also dipped 66.3% year-on-year to RM174.2 mil from last year’s RM516.4 mil.
The drop was mainly due to the full impact of the movement control order (MCO) in April, followed by the gradual reopening of stores in May.
During the quarters, the company has also written down and written off inventories amounting to RM7.9 mil, representing 61.7% of the amount of inventory written down in FY20.
“In the initial phase of reopening, trying on clothing items in stores was prohibited, which may have also deterred consumers from buying in-stores,” MIDF said in a note earlier today.
Being predominantly reliant on in-store sales, Padini may have lost to other online fashion platforms during MCO, which has further accelerated the digitalisation shift.
However, MIDF believes that the rise of digitalisation will not put an end to brick-and-mortar retail shops.
“We believe that the brick-and-mortar formats will still be relevant in the long-run as the physical shopping experience is different,” it added.
Taking current conditions into consideration, MIDF is cutting its FY21E/FY22F by -19.7% and -9.2% respectively as consumer sentiment becomes more cautious.
“We also think that recovery in sales and profitability may take time due to competition (competitors giving discounts to lure customers) as well as potential loss of sales to other digital platforms,” it said.
Following the changes in its earnings estimates, the FY21F earnings per share of 15.5 sen per share to a P/E ratio (PER) of 13.5x remains unchanged.
“The assigned PER multiple is -1.5SD below the group’s one-year average historical PER as we account for the challenging business condition and shift in consumer behaviour. Dividend yield is estimated at 2.9%,” MIDF said.
As of 2.26pm, Padini Holdings Bhd’s share price stands at RM2.35, showing an increase of 9.30%, with a market capitalisation of RM1.55 bil.
