PETALING JAYA: A challenging retail sector outlook, amid inflationary pressures, could have an impact on Padini Holdings Bhd
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Apart from inflationary pressures, TA Research, in a report ,said the retail sector in general continues to face challenges stemming from escalating costs and trade tensions, all of which could erode purchasing power.“On a positive note, we expect the fourth quarter of its current financial year (4Q24) performance to remain satisfactory, driven by the affordable product offerings and ongoing efforts to optimise costs.
“Meanwhile, we reckon that the group will enhance its dividend pay-out ratio to circa 44% for financial year 2024 (FY24) while maintaining its net cash position.”
For 3Q24, Padini’s net profit dipped to RM40.52mil from RM43.38mil in the previous corresponding period, while revenue rose to RM575.37mil from RM457.23mil a year earlier.
In a note on its financial results, Padini said it will continue to provide value for money products and implement measures to control costs, optimise working capital, preserve cash and streamline the operations to minimise any adverse impacts.
Kenanga Research said Padini guided for a challenging near-term outlook in the apparel retailing sector, due to weakened spending sentiment amidst persistent high inflation and consumers’ anxiety over the impending subsidy rationalisation.
“While we understand Padini has no immediate plan to raise product prices, it hopes to defend its margins by introducing higher-margin products amid volatile raw material costs, a weak ringgit and sustained high staff and distribution expenses.
“On a brighter note, the 13% salary increase for civil servants effective December 2024 should at least partially restore consumer spending power.”
Meanwhile, MIDF Research said it is optimistic about Padini’s FY25 outlook, driven by solid demand for its competitively priced products.
“We believe that Padini is well-positioned from the consumers that are shifting towards value fashion products in the current inflationary environment.
“This demand is further supported by a stable job market, progressive wage policies for public servants and Employees Provident Fund Account 3 withdrawals. We also like the group’s strong net cash position of RM722mil that could protect against potential downside risks.”
The research house said it is upgrading the stock to “buy” from “neutral” previously, with a higher target price of RM4.30.
“We revised our valuation to a three-year forward consumer discretionary mean price-to-earnings ratio (PER) of 14.5 times, in view of the better mid-to-long term prospects.”
TA Research, meanwhile, is reiterating its “buy” call on the stock with an unchanged target price of RM4.40 per share, based on a calendar year 2025 PER of 15 times.
