Padini prospects positive, driven by improved consumer sentiments

KOTA KINABALU: Analysts pegged a more favourable view on Padini Holdings Bhd’s (Padini) prospects as they expect its growth to be driven by improved consumer sentiments and the sustained ringgit recovery.

In a report, AllianceDBS Research Sdn Bhd (AllianceDBS Research) said it has upgraded its call on Padini to ‘hold’ based on its favourable prospects.

“Despite the large earnings base established in the financial year 2017 (FY17), we believe that the group’s earnings prospects will continue to be supported by ongoing strong demand for its products.

“Furthermore, we believe that the group’s earnings will benefit from a recovery in consumer spending and the sustained ringgit recovery,” it opined.

It further noted that Padini has sourced its products abroad since 2014.

“The group sources about 70 per cent of its products from China, which are denominated in renminbi; 20 per cent being sourced domestically, while the remainder from other countries in the region, mainly denominated in US dollar,” it explained.

“Although it is not a straight forward exercise to determine the proportionate improvement in its gross profit margin with a one per cent appreciation of the ringgit against US dollar to renminbi, given that the group will pass through some cost savings to the sourcing agents depending on their negotiation power, it is apparent that the ringgit’s recent recovery against both currencies, should this be sustained, will help to lower its inventory cost and improve its margin in the coming quarters,” the research team projected.

Meanwhile, on the group’s upcoming third quarter of the financial year 2017 (3QFY17) results, AllianceDBS Research believed that the group would record double digit year-on-year (y-o-y) growth.

It said, “We believe that the group will report double digit yo-y growth for both topline and bottomline, supported by Chinese New Year festive sales, its continued attractive mix and match bundling strategy, and 12 new stores openings in the first nine months of FY18 (9MFY18).”

As such, it said it is comfortable that the group is well on track to meet our FY18 net profit forecast of RM180 million.