Padini Holdings - Spread its wing to Indonesia

What’s New

Padini has sealed exclusive 10-year deal with Singapore’s FJ Benjamin Group to distribute Vincci women’s shoes and accessories in Indonesia. Under the agreement, FJ Benjamin will through its associate PT Gilang Agung Persada, open a total of 25 stores within five years all over Indonesia.


Comment

- We are positive on the deal as it enables Padini to stretch its foothold to Indonesia. We reckon that ventures into Indonesia with large population of over 240million would propel the Group’s future earnings growth. We also believe Vincci brand which is fashionable yet affordable should well-received by the Indonesian consumer.

- Reputable partner. We are upbeat on FJ Benjamin to help Padini to build strong reputation for its Vincci in Indonesia banking on its status as Singapore’s leading fashion retailer with a 53-year track record and has a retail network of more than 190 stores.

- We think the deal would not contribute significantly to the Group’s FY13-14 earnings as the 25 new stores would only be opened within five years. We expect minimal earnings contribution of less than 1% from the deal for FY13-14. Yet, we expect greater earnings contribution from the Indonesian ventures of less than 2% from FY15 onwards. We reckon venture into Indonesian market would require gestation period of 2-3 years before the Group could reap greater market share in Indonesia.


Earnings Outlook/Revision

- We maintain our earnings forecast for FY13-14 at this moment pending further details from management.

- We expect earnings of Padini Holdings for FY13-14 would not be much affected by the deal.


Valuation & Recommendation

- Downgrade to HOLD with a higher target price of RM2.09, pegged at higher PER of 13.5x FY13 EPS in view of its rosy long term prospect by venturing into Indonesia.

- We advise investors to accumulate the stock at lower entry price of RM1.90 as current share price offers limited upside after the share price appreciated 36.5% since our initiation coverage report and we believe current share price has run ahead of its fundamental. We like the stock for its robust earnings growth and its defensive business model.

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+ 1 rep = 122

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good for uncle...