Académique Documents
Professionnel Documents
Culture Documents
PADINI HOLDINGS
(PAD, PDNI.KL)
6 March 2012
BUY
(INITIATION)
Rationale for report: Initiation Coverage
Investment Highlights
We initiate coverage on Padini Holdings Bhd (PAD), with a BUY recommendation and a fair value of RM1.80/share, based on a 10% discount to on DCF value of RM2.00/share (implied PE of 11x FY12F). FY12F (June) is turning out to be an aggressive year for Padini, contributing to one of the largest number of store openings in a single fiscal year. Thus far, 4 stores have been launched and 6 more 3 each of Brands Outlet and Concept Stores are targeted to open in 2HFY12. This reflects Padinis deepening market penetration and ascendency as a preferred mini-anchor for retail malls. Its strong brand equity is the pull factor in the boosting of retail traffic. We forecast earnings to expand by 12% from RM75mil in FY11 to an estimated RM83mil for FY12F. Earnings are expected to accelerate by 19% in FY13F, boosted by the full-year impact of 10 new stores. We have assumed 5 new stores each for FY13F and FY14F. FY13F sales would get a further boost from the Malaysia Mega Sale taking place from 15 June 2012 to 2 September 2012. Apart from the opening of new stores, we have not incorporated the collaboration with FJ Benjamin for the Vincci licence in our forecast. Discussion is preliminary at this stage. Short to medium term impact would not be significant until the size of distribution network in Indonesia grows considerable large. The group has no official dividend policy. Nevertheless, it has a consistently paid out dividend of at least 30% of earnings from FY07-FY11. We forecast an unchanged dividend payout of 30%, translating to a DPS of 4.0 sen and 4.5 sen for FY12F and FY13F, respectively. Padinis market capitalisation is approaching RM1bil. This would improve visibility and investability among the institutional funds. At present, local institutions hold at least 20% of Padini but we expect the level of institutionalisation to expand. We like Padini due to:- (1) Strong balance sheet (net cash); (2) Brands Outlet and Concept Store are mini-anchor tenants, given their potential to increase footfalls for retail malls; and (3) Potential growth in the domestic market especially in the outskirt areas. Despite strong share price performance, valuation is undemanding because earnings expansion is significant, growing by CAGR of 12% over FY12F-FY14F, and free cash flow of more than 10%. At current levels, the stock is trading at an attractive PE between 9x-11x.
568.5 648.9 732.1 801.6 74.7 83.3 99.2 105.1 11.3 12.7 15.1 16.0 24.7 11.5 19.2 5.9 n/a 0.13 0.14 0.15 4.0 4.0 4.5 5.0 13.0 11.6 9.7 9.2 8.8 8.0 6.3 5.5 2.7 2.7 3.1 3.4 28.9 27.4 27.5 24.4 Net cash Net cash Net cash Net cash
657.9 967.1 0.43 3.4 28.9 Net cash Yong Pang Chuan (43.9%) 47.6 2.1 3mth +34.5 +25.3 6mth +60.0 +46.4 12mth +35.8 +30.0
1,674
1.50
1,481 I n d e x P 1,288 o i n t s
) M 1.00 R (
0.50
1,095
0.00 M a r 0 7
S e p 0 7
M a r 0 8
S e p 0 8
M a r 0 9
Padini
S e p 0 9
M a r 1 0
FBM KLCI
S e p 1 0
M a r 1 1
S e p 1 1
M 902 a r 1 2
PP 12247/06/2012 (030106)
6 March 2012
In 2HFY12, 6 new stores are in the pipeline 3 Padini Concept store at The Paradigm (Kelana Jaya), Setia City Mall (Shah Alam) and AEON 18 (Ipoh) and 3 Brands Outlet store The Paradigm, Setia City Mall and Boulevard (Kuching). However, there could be a possible delay in the opening of stores at The Paradigm. The mall is expected to be ready by late May-2012.
The group has no intention of closing down any stores in the near future.
500 400 300 200 100 FY07 FY08 FY09 FY10 FY11
Revenue
Source: Company / AmResearch
Pre-tax profit
Net Profit
BRANDS OUTLET
Brands Outlet was first opened in FY07 and is one of the fastest growing segments as depicted in the table below.
The all in one fashion store is a well-known home-grown brand targeting the lower end market segments. The group has managed to position itself as a leading brand in Malaysia and utilises a great number of lesser-known house brands to market value-for-money merchandises.
Padini Holdings Berhad Any slowdown or downturn in the economy would less likely affect the Brands Outlet compared to high-end retailers. 1st Avenue (Penang)
6 March 2012
By the end of FY12, 3 Brand Outlet stores will be opened in: The Paradigm (Kelana Jaya) Setia City Mall (Shah Alam) Boulevard (Kuching)
The group is looking at taking over the space area which is currently tenanted by S&M department store (NLA: 11,000sf) at Genting Highland Hotel, in FY13. The group is currently still in negotiation with the hotel. Management has not decided on whether to take on the lease yet. We are positive on the groups expansion on its Brands Outlet division as seen in the encouraging sales performance over the period from FY07-FY11. Given the lower base of start-up cost and minimal operating expenses, overall net impact on operating margin is positive, despite lower gross profit margin due to lower value products.
58.3 40.7 24.4 12.9 0.3 FY07 0.7 FY08 1.1 FY09 16.9 6.4
CONCEPT STORE
FY10 FY11
Retail gem
Brands Outlet started in December 2006 with its first store at Ampang Point. The group decided to venture into different market segments and move into low-end retail market, targeting bargain hunters. Brands Outlet houses a variety of in-house and third party consignment goods, focusing on high volume fast-selling clothing at low prices and value for money merchandises. Products offered are mainly rejected items or factory overrun. In the near term, the group intends to manage Brands Outlets store in a more cost efficient manner by implementing a supermarket concept. Items would be placed efficiently on clothing racks with display signs stating information of the merchandise, where shoppers are able shop without any assistance from sales personnel. The supermarket concept would greatly save the group on staff cost and also allow better staff management. Brands Outlet is under the management of Yee Fong Hung.
Concept Store houses most of Padinis other brands, namely, Padini, Padini Authentics, PDI, Seed, P&Co, Miki, Vincci and Vincci+. Concept store offers higher-margin merchandise that sells slower compared to Brands Outlet.
The group finds difficulty in expanding in urban areas due to limited supply of new mall at good location. Moving forward, the group intends to consolidate the stand-alone stores into Concept Store, given the availability of floor space. Customers would have access to all Padinis in-house brand collection at one location. Bigger floor space imply lower rental, better management of staff and savings on operation cost.
EXPANSION PLAN
The group intends to expand out of the Klang Valley. To date, 70%-75% of revenue is derived from stores within the Klang Valley. The group plans to open new stores in the suburban and outskirt areas such as East Malaysia, hoping to leverage on a captive market. 3
Padini Holdings Berhad Management intends to concentrate on the domestic market and have no intention on venturing into overseas for the time being. The group is trying to expand the network of Brands Outlet quickly to create greater market awareness and commanding more market presence. At the same time, to also fine-tune merchandising mix and offerings, and pricing strategies.
6 March 2012
Charles and Keith, a Singapore-based retailer for handbags, shoes and accessories is the closest competitor to Vincci. However, Charles and Keith is not listed on the stock exchange. International peers such as Zara, is the closest competitor for Seed and Padini brands. However, Zara is substantially larger than Padini and is a privately-owned company.
VINCCI+
est PE (x)
Vincci+ line is undergoing make over with an emphasis given to premium handbag instead of shoes. While shoes offered would be considerably more expensive than the regular Vincci store, these shoes would serve as a complement to the bags, which ultimately should end up as the main draw for anyone visiting Vincci+.
30.0x 25.0x 20.0x 15.0x 10.0x 5.0x PE -1, 5.2x PE , 15.2x PE +1, 25.2x
Jan-12 Aug-11 Mar-11 Oct-10 May-10 Dec-09 Jul-09 Feb-09 Sep-08 Apr-08 Nov-07 Jun-07 Jan-07 Aug-06
DIVIDEND POLICY
The group has no official dividend policy. Nevertheless, it has a consistently paid out dividend of at least 30% of earnings from FY07-FY11. We forecast an unchanged dividend payout of 30%, translating to a DPS of 4.0 sen and 4.5 sen for FY12F and FY13F, respectively. So far, for FY12, the group has declared first and second interim dividends totalling of 4.0 sen per share, amounting to RM26.3mil.
Source: Company / AmResearch
PEER COMPARISON
The closest peers are Bonia and Charles and Keith. Other Padini peers are mainly international brands such as Giordano, Zara and Charles and Keith. Bonia, a retailer for leather goods, clothing and accessories, has a relatively small market capitalisation of RM478mil compared with RM967mil for Padini.
6 March 2012
3.2
2.4 ) x ( 1.6
Avg
-1s
0.0 O c t 0 9
J a n 1 0
A p r 1 0
J u l 1 0
O c t 1 0
J a n 1 1
A p r 1 1
J u l 1 1
O c t 1 1
J a n 1 2
1.0 O c t 0 9
J a n 1 0
A p r 1 0
J u l 1 0
O c t 1 0
J a n 1 1
A p r 1 1
J u l 1 1
O c t 1 1
J a n 1 2
Padini Holdings
6 March 2012
518.8 81.6 0.0 81.6 (1.1) 4.7 0.0 85.2 (25.3) 0.0 59.9 59.9 2010 80.8 7.0 4.5 92.3 135.0 76.6 32.6 20.2 264.3 58.6 26.1 26.6 111.4 10.1 0.8 10.9 234.3 0.0 0.36 2010 85.2 21.8 26.8 (23.6) 110.2 (25.7) 0.1 (2.0) (27.6) 7.8 0.0 (17.8) (3.5) (13.5) 69.2 61.4 98.8 2010 9.1 27.1 16.4 11.5 74.6 29.7 33.0 23 59 n/a
568.5 99.1 0.0 99.1 (1.0) 6.0 0.0 104.0 (29.4) 0.0 74.7 74.7 2011 83.6 6.5 4.4 94.6 138.6 171.0 39.4 0.7 349.8 93.9 24.9 19.1 137.9 22.2 1.6 23.7 282.7 0.0 0.43 2011 104.0 22.3 (69.0) (27.6) 29.8 (24.7) 20.4 0.0 (4.3) 11.5 0.0 (32.9) (0.7) (22.1) 3.4 (8.1) 91.5 2011 9.6 21.5 18.3 13.1 63.0 28.2 35.2 23 79 49
648.9 110.3 0.0 110.3 0.0 5.3 0.0 115.6 (32.4) 0.0 83.3 83.3 2012F 92.5 7.0 4.4 103.9 106.4 131.3 33.9 32.5 304.1 51.6 3.1 7.4 62.1 19.0 1.6 20.6 325.3 0.0 0.49 2012F 115.6 26.7 (87.4) (34.8) 20.1 (26.0) 0.3 0.0 (25.7) (3.3) 0.0 (26.3) 5.2 (24.5) (30.1) (26.8) 84.3 2012F 14.1 11.3 17.8 12.8 75.9 28.0 31.6 21 85 41
732.1 131.8 0.0 132 0.0 6.0 0.0 137.8 (38.6) 0.0 99.2 99.2 2013F 97.7 7.4 4.4 109.6 155.6 106.9 32.9 69.3 364.7 49.3 2.6 9.2 61.2 16.6 1.6 18.1 395.0 0.0 0.60 2013F 137.8 30.2 (27.8) (41.8) 98.5 (26.0) 0.3 0.0 (25.7) (2.9) 0.0 (26.3) 5.6 (23.6) 49.2 52.0 136.4 2013F 12.8 19.4 18.8 13.6 104.6 28.0 29.8 17 59 25
801.6 136.3 0.0 136.3 0.0 9.7 0.0 145.9 (40.9) 0.0 105.1 105.1 2014F 101.2 7.9 4.4 113.5 230.5 105.7 31.0 61.8 429.0 45.6 2.2 11.5 59.3 14.5 1.6 16.0 467.1 0.0 0.71 2014F 145.9 34.0 (6.8) (47.7) 125.5 (28.0) 0.3 0.0 (27.7) (2.5) 0.0 (29.6) 9.3 (22.8) 74.9 77.4 213.8 2014F 9.5 3.4 18.2 13.1 124.6 28.0 31.3 15 48 22
Padini Holdings
6 March 2012
Published by AmResearch Sdn Bhd (335015-P) (A member of the AmInvestment Bank Group) 15th Floor Bang unan AmBank Group 55 Jalan Raja Chulan 50200 Kuala Lumpur Tel: ( 0 3 ) 2 0 7 0 - 2 4 4 4 ( r e s e a r c h ) F a x: ( 03 ) 2 07 8- 3 1 6 2 Printed by AmResearch Sdn Bhd (335015-P) (A member of the AmInvestment Bank Group) 15th Floor Bang unan AmBank Group 55 Jalan Raja Chulan 50200 Kuala Lumpur Tel: ( 0 3 ) 2 0 7 0 - 2 4 4 4 ( r e s e a r c h ) F a x: ( 03 ) 2 07 8- 3 1 6 2
The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. For AmResearch Sdn Bhd