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Company Analysis Is it time to get back into Padini?

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Company Analysis Is it time to get back into Padini? Empty Company Analysis Is it time to get back into Padini?

Post by Cals Thu 06 Mar 2014, 17:28

Company Analysis Is it time to get back into Padini?
Business & Markets 2014
Written by Madiha Fuad of theedgemalaysia.com   
Thursday, 06 March 2014 15:51

AMID a challenging environment in the retail sector, Padini Holdings Bhd is pushing ahead with its aggressive expansion plan to open nine stores in FY2014, ending June 30. 

After what looked like a pause in new store openings in FY2013, the group is looking to open six new Brands Outlets and three Padini Concept Stores (PCS) by the end of FY2014. 

Padini director Chan Kwai Heng tells The Edge that the group has already opened three new Brands Outlet stores — in Penang, Langkawi and Miri. 

“We are expecting to open three more [Brands Outlet stores] — one each in Seremban, USJ and Johor Baru. They are expected to come in by the end of June.”  

Meanwhile, the group has opened one PCS in Gurney Paragon, Penang, and is expected to open two more — in Seremban and Miri — in two months’ time, according to Chan. 

The planned store openings appear to be the most aggressive in recent years. In FY2013, the group opened only one new Brands Outlet store while in FY2012, there were four PCS openings.

Padini, which makes apparel under brands such as Padini Authentics, Vincci, Seed, Brands Outlet, Miki Kids, Miki Mom and P&Co, also operates two cafés called Seed Café.

Founded in 1971, Padini’s products are available in Malaysia, Bahrain, Brunei, Cambodia, Egypt, Indonesia, Kuwait, Morocco, Myanmar, Oman, Pakistan, the Philippines, Qatar, Saudi Arabia, Syria, Thailand and the United Arab Emirates.

Major shareholders in Padini include its managing director Yong Pang Chaun’s private entity, Yong Pang Chaun Holdings Sdn Bhd, with a 43.74% stake, and Skim Amanah Saham Bumiputera with 5.01%. 

Despite the company maintaining a strong balance sheet and consistently paying out dividends, investors have pared their holdings in Padini due to the expected slowdown in consumer spending on the back of the government’s subsidy rationalisation exercise.

Retail stocks are usually among the first to be affected by higher cost of food, petrol and utilities as well as toll rates as consumers adopt more prudent spending habits and reduce discretionary spending. 

Padini has declined 23.6% from its one-year peak of RM2.08 last May to a two-year historical low of RM1.59 on Feb 6. 

Some are seeing a buying opportunity. 

Maybank Investment Bank Research’s Kang Chun Ee has a “buy” call on Padini and a target price of RM1.87, noting that there is still upside potential to the stock. “Padini is the highest yielding stock in our consumer sector coverage.”

With net cash of RM178.1 million, he expects special dividends to be distributed in the future, given its net cash per share of 27 sen as at end-September 2013.

For FY2013, the group paid out a dividend of eight sen per share, compared with six sen in FY2012. Kang expects this to increase to 11.5 sen per share for FY2014, which translates into a yield of 7.1%.  

For its 1QFY2014 ended Sept 30, 2013, Padini paid an interim dividend of 2.5 sen per share and a special dividend of 1.5 sen, which prompted Kang to revise upwards his forecast to 11.5 sen. 

In 1QFY2014, the group’s net profit increased to RM27.7 million from RM25.3 million a year ago. Revenue also rose to RM217.2 million from RM201.1 million previously. 

The group says the improvement was driven primarily by an increase in exports and the strong performance of its Brands Outlet stores. 

Padini is expected to grow its net profit to RM95.8 million in FY2014 from RM85.4 million in FY2013, says Kang.
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Revenue is expected to increase to RM837.2 million from RM789.8 million previously. 

Padini’s revenue is also projected to reach the RM1 billion mark in FY2016, with net profit of about RM118.7 million, according to Kang’s estimates.

AmResearch’s Tan Ee Zhio says the operating environment remains challenging due to intense competition. She has a “hold” call and a target price of RM1.80 for Padini. 

“We maintain our earnings numbers and neutral stance on the stock in light of uncertainties about consumer spending and a potential slowdown in the group’s sales volume,” she says. 

Nevertheless, she expects Padini to post strong second quarter results buoyed by consumer spending during the year-end festive seasons. 

She adds that bundling promotions, especially by Brands Outlet, will further drive earnings growth forward. 

“We are maintaining our gross profit margin assumption at 46% for FY2014, compared with FY2013’s 47%, in view of margin pressure arising from a notable shift in consumer preference for value-for-money products.” 

With a market capitalisation of RM1.1 billion, Padini was among the 10 Malaysian companies listed in Forbes Asia magazine’s “Asia’s 200 Best Under A Billion” companies in 2013. 


This story first appeared in The Edge Malaysia Weekly Edition, on February 17 - February 23, 2014.
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