- We
maintain our BUY recommendation on Padini Holdings, with an unchanged fair
value of RM2.15/share, based on a 10% discount to our DCF value of
RM2.39/share, as the current share price still provides a potential upside to
our fair value.
- Following
a meeting with management, we gathered that the full-year FY12 results will be
stronger, driven by on-going earnings generated from the aggressive expansion
of 10 additional stores – 6 Brands
Outlet, 4 Concept Store (SSS: 15% FY12 vs. 7% FY11).
- Brands
Outlet in Fahrenheit 88 is targeted to open in August. As such, we expect
revenues to be lifted further by the Malaysia Mega Sales and Hari Raya Sales.
Despite having only one new store in the pipeline for FY13F, earnings growth
continues, riding on the five new openings in May FY12.
- The
opening of new stores is purely dependent on upcoming retail malls in the
country, and the availability of space in existing malls. Having said that,
Padini is continuously reinventing itself to stay focus and relevant within the
fashion industry. It has consistently improved its brand image by investing in
high capex every few years to upgrade the store environment, as well as through
effective cost management – shrinking production lead time significantly via
direct orders from manufacturers in China for trendy clothing.
- The first
H&M flagship store will open its doors in September at Lot 10. Being the
first in Malaysia, H&M will definitely create intense hype among shoppers,
at the initial stage. We do not rule out
the possibility of competition among retailers. Nevertheless, we believe
this is beneficial to Padini because H&M is pulling additional footfall to
Jalan Bukit Bintang and more importantly, a spill over effect is bound to
happen. Padini has a total of 90 stores which are geographically
well-diversified, targeting different sets of shoppers and this, we believe, is
a plus point over H&M.
- The
finalisation of the Vincci franchise licence with FJ Benjamin is anticipated to
be completed in August and distribution should commence by year-end. Management
expects FJ Benjamin to open 5 stores in the first year of operation. Impact on
earnings is insignificant in the near- to medium-term as Padini only receives
revenue from sale on a cost-plus basis, unless the distribution network in
Indonesia grows considerably large.
- Given
that Malaysia is still a very lucrative market, management has no intention to
explore overseas. In the event that Padini decides to venture overseas in a
country where franchise licence is given, we reckon this would take off fairly
well, as the brand’s name would have been established.
- Padini
has recently changed its policy to pay dividends quarterly, instead of
half-yearly. Given the robust earnings growth (3-year CAGR FY11: 22%) along
with sustainable growth, we would not be surprised if management were to dish
out more generous dividends, moving forward. It has consistently paid dividends
of at least 30% of earnings.
- Our fair
value implies a 15x PE on FY12F, trading above its historical mean of 10x.
Trading at a forward PE of 13x, we continue to like Padini for its aggressive
expansion and franchise value.
Source: AmeSecurities
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