PADINI: Analyst Maintains ‘Buy’ Rating, Foresees Resilience Amid Cost Pressures

TA Securities has reiterated its “Buy” recommendation, maintaining an optimistic outlook on the company’s financial performance despite prevailing cost pressures. The investment bank anticipates the group to demonstrate continued resilience and promising growth in the upcoming fiscal year, supported by strategic initiatives focused on operational efficiency and market expansion.

Performance and Efficiency Drive

The positive sentiment is primarily attributed to the group’s proactive measures, including ongoing optimization of its product portfolio and a relentless focus on improving operational efficiency. These efforts are expected to mitigate the impact of rising operational costs, such as rental, labour, and depreciation expenses. Furthermore, potential tailwinds from a firmer ringgit and a recent reduction in the Sales and Service Tax (SST) on rental and leasing services (from 8% to 6%) are expected to cushion overall cost impacts, reducing the estimated incremental cost for FY26 to RM8-15 million.

Management’s disciplined approach extends to inventory management, where active refinement of the product mix aims to align with evolving consumer trends. This strategy is crucial for mitigating risks of slower sell-through and limiting the necessity for markdowns, thereby supporting gross profit margin preservation. The investment bank forecasts a gross profit margin of 39.2% for FY26, comfortably within management’s target range of 36-40%. Contributions from higher-margin segments, such as activewear and Intellectual Property products, along with ongoing technological enhancements, are also expected to bolster margin stability.

Strategic Expansion and Market Dynamics

The group is poised for continued market penetration and growth, with plans to renovate 11 existing stores and open 5 new outlets in FY26. These additions are projected to expand its global footprint to 182 outlets. Capital expenditure for FY26 is forecast at RM65 million, aligning with management’s guidance of RM50-70 million per annum, reflecting robust expansion and refurbishment plans. Sales per store have already shown an average increase of approximately 3% following recent reopenings, indicating positive market reception.

Despite heightened consumer price sensitivity, the group remains cautious about raising prices, instead prioritizing a strong value proposition and product affordability to sustain sales volumes. Healthy sales in the second and third quarters of FY26 are anticipated, driven by stronger consumer purchasing power and seasonal festive demand.

Outlook and Valuation

With a robust strategy to navigate cost pressures and capitalize on growth opportunities, TA Securities maintains its “Buy” recommendation, reflecting an attractive valuation and a compelling investment story. The continued focus on operational excellence, prudent expansion, and market responsiveness positions the company for sustained earnings resilience.