Thursday 10 May 2012

Padini Holdings (PAD MK, BUY, FV: RM2.13, Last Price: RM1.75)


During our recent tour of Vincci’s designer team office and Padini warehouse, we got a sneak peek of Padini’s gorgeous Oct/Nov collections. We like the company’s solid fundamentals and the fact that its expansion plans are well on track. The impact of Malaysia’s implementation of a minimum wage on Padini is marginal  as it is cushioned by a robust top-line. As its upcoming earnings are likely to improve in tandem with its aggressive store expansion, we are raising our FY12 and FY13 forecasts by 4.9% and 5.8% respectively. Maintain BUY, with a FV of RM2.13.

A special tour. Last week, we visited Padini Holdings for a behind-the-scene tour of its Vincci designer office and warehouse. We were among the lucky ones who got to view its October and November shoe and bag collections in the Vincci showroom. Padini owns 3 warehouses at the Hicom Glenmarie industrial park. We also visited the company’s apparel warehouse.

Minimum wage not an issue. The minimum wage for Peninsular Malaysia has been set at RM900 while that for Sabah and Sarawak is RM800. The private sector has been given a grace period of 6 months to implement this policy. We believe this would have negligible impact on Padini’s earnings because: (i) the company’s lowest wage is RM800 and RM600 for West and East Malaysia respectively,  which is not too far from the prescribed minimum wages, and (ii) the affected staff comprises <10% of the company’s 3k employees.

Still in talks with FJ Benjamin.  As we highlighted in our previous report, the management is still in discussions with FJ Benjamin Indonesia in relation to the Vincci (under the brand name ‘VNC’) franchise. The potential collaboration would allow Padini to expand overseas, especially in the relatively untapped market of Indonesia, by leveraging on the expertise of FJ Benjamin.

Maintain BUY. Padini will be opening another Brands Outlet at Fahrenheit 88 in Bukit Bintang in FY13. The company also plans to launch a new line of children’s wear for its Brands Outlets by year-end. We believe that the company’s upcoming quarterly results are likely to be better than expected given its aggressive outlet expansion. Assuming a stronger top-line, our FY12 and FY13 forecasts are revised up marginally by 4.9% and 5.8% respectively. Maintain BUY, with a new FV of RM2.13, as we roll over our valuation from FY12 to FY13.  As the group’s  performance has been encouraging, we expect management to be more generous in dishing out dividends in the future.

Source: OSK188

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