Maybank IB Research
PP16832/01/2012 (029059)
Initiating Coverage
14 July 2011
Padini Holdings
Berhad
Dressed to kill
Buy (new)
Share price:
Target price:
A proven business model. A homegrown fashion retailer, Padini’s
track record speaks for itself. That the group has sustained
uninterrupted revenue growth since its listing in 1998, particularly in
such a competitive industry, is a very strong testament to the
capabilities of its management team that has been able to innovate and
move with the times. We initiate coverage on Padini Holdings (Padini)
with a Buy call and a target price of RM1.30.
RM1.05
RM1.30 (new)
Kang Chun Ee
chunee@maybank-ib.com
(603) 2297 8675
A full fashion house. Founded 40 years ago, Padini Holdings has
transformed itself into a force in the Malaysian retail fashion industry.
From a clothing manufacturer and wholesaler, Padini now fields its own
design teams, 8 core brands and 80 of its own stores. It has forged a
niche in the affordable trendy segment catering mainly to young adults
who tend to demonstrate greater spending propensity.
Chong Ooi Ming
ming.c@maybank-ib.com
(603) 2297 8676
An enviable track record. Revenue CAGR was 17% over the past 12
years, while net profit CAGR has been higher at 28%. From 4.7% in
1999, Padini’s pretax margin now stands at 16.6% vs. peers’ 11.6%, a
hefty 12-ppts expansion. Padini’s earnings have remained resilient
even during two economic recessions since its listing.
Description: Retails garments, shoes, ancillary products,
and accessories.
Information:
Ticker:
Shares Issued (m):
Market Cap (RM m):
3-mth Avg Daily Volume (m):
KLCI:
PAD MK
657.9
690.8
2.00
1,580.67
Major Shareholders:
Pang Chaun Yong
%
44.0
Price Performance:
52-week High/Low
1-mth
(4.5)
6-mth
14.1
1-yr
31.9
Price Chart (RM1.05)
1.4
PAD MK Equity
1.2
1.0
0.8
0.6
0.4
Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
Description: National power utility involved in the
generation, transmission and distribution of electricity
Superior financials. Padini’s ROEs of more than 25% are significantly
superior to that of its local peers in the retail industry, where the
average is about 17% in 2010. We expect ROEs to remain high and
forecast an ROE of 26.0% in FY12 and 25.3% in FY13. Padini’s
balance sheet is healthy with the group in a net cash position – it
however does not have a fixed dividend payout policy as yet.
Initiate Buy, RM1.30 target price, 24% upside. We forecast a 3-year
net profit CAGR (FY10-13) of 14.5% driven by an increase in total
stores and stable margins. Our RM1.30 target price pegs Padini’s
CY12 earnings to a PER of 10.2x, in line with other foreign listed
retailers.
RM1.35/RM0.78
3-mth
(2.8)
Forecast revenue growth of 14-16% in FY12-FY13. We expect
revenue growth to gather momentum over the next two years, driven
primarily by contributions from new stores (3 Brands Outlets and 2
concept stores in FY11, potentially 6 Brands Outlets and 2 concept
stores in FY12). We expect stable EBITDA margins of 21-22%.
YTD
(3.7)
Padini Holdings Berhad – Summary Earnings Table
FYE Jun (RM m)
Revenue
EBITDA
Recurring Net Profit
Recurring Basic EPS (Sen)
EPS growth (%)
DPS (Sen)
PER
EV/EBITDA (x)
Div Yield (%)
P/BV(x)
Net Gearing (%)
ROE (%)
ROA (%)
Consensus Net Profit (RM m)
Source: Maybank IB
2009A
475.5
88.2
49.5
7.5
18.7%
2.7
2010A
520.9
107.0
61.0
9.3
23.1%
3.0
2011F
540.9
116.8
68.7
10.4
12.7%
4.0
2012F
611.9
133.7
78.9
12.0
14.8%
4.0
2013F
714.4
152.1
91.5
13.9
15.9%
4.0
13.9
7.5
2.6
3.4
11.3
5.5
2.9
2.9
10.1
4.7
3.8
2.5
8.8
3.7
3.8
2.1
7.6
2.9
3.8
1.8
NA
26.5%
17.8%
-
NA
27.8%
18.8%
-
NA
26.9%
17.8%
70.0
NA
26.0%
17.8%
79.4
NA
25.3%
17.8%
90.7
Padini Holdings Berhad
Overview of Padini Holdings

Corporate profile
40 years of experience. Padini Holdings began operations in 1971,
starting as a clothing manufacturer and wholesaler. Founded by its
serving Managing Director, Mr. Yong Pang Chaun, Padini was listed on
the Second Board of Bursa Malaysia in 1998 with a market
capitalisation of RM84m. The group has burgeoned in size and
graduated to the Main Board in 2004. Today, it is 8x bigger with a
market capitalisation of RM690m and on track to hit RM69m in profits.
Superb track record. Since listing in 1998, Padini’s revenue has
achieved a superb track record, with uninterrupted growth over the past
12 years. Save for 2 years, pretax profit has ascended smoothly over
this period as well. Revenue CAGR was 17% over the period, while net
profit CAGR has been higher at 28%. The crux of it is that not only has
Padini steered revenue higher over the past 12 years, it has
successfully expanded its margins over as well. From a pretax margin
of 4.7% in 1999, Padini’s pretax margin today stands at 16.6%,
representing a hefty 12-ppts expansion.
Chart 1: Steady revenue growth even in recession years
RM m
600
Revenue (LHS)
%
18
PBT margins (RHS)
16
500
14
400
12
10
300
8
200
6
4
100
2
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
1999
0
Sources: Company, Maybank-IB
Chart 2: Padini Holdings’ ownership and corporate structure
The founding Yong family
(44%)
Owns 100% of all subsidiaries
Padini Corporation Sdn
Bhd
Padini International Ltd
(HK)
Padini Dot Com Sdn Bhd
Source: Company
14 July 2011 Page 2 of 13
Vincci Ladies Specialties
Centre Sdn Bhd
Vincci HoldingsSdn Bhd
Yee Fung Hong Snd Bhd
Mikihouse Childrend Wear
Sdn Bhd
The New World Garment
Manufacturers Sdn Bhd
SEED Corporation Sdn
Bhd
Padini Holdings Berhad
Held and managed by firm hands. On the job since its founding is
Managing Director Mr. Yong Pang Chuan, who set up Padini in 1971.
Before setting up Padini, Mr. Yong gained considerable experience in
the textile trade in Singapore. Mr. Yong is ably aided by Mr. Cheong
Chung Yet, the director of marketing and Mr. Chan Kwai Heng, the
director of finance.
Table 1: Board of Directors
Name
Designation
Datuk Dr. Abdullah Bin. Abdul
Rahman
Chairman , Independent
Non-Executive
 33 years of public service including Ministry of Health and Prime Minister’s
Department, PhD & Masters - Public Administration, S. California University,
USA
Remarks
Yong Pang Chuan
Group Managing
Director
 Founder of Padini Holdings - over 30 years experience in apparels & textiles. In
charge of group strategy & planning
Chan Kwai Heng
Executive Director
 Joined Padini in 1988 - oversees financial and administrative activities. MBA,
Paris Graduate School of Management, Bachelor of Economics, University of
Malaya
Cheong Chung Yet
Executive Director
 Joined Padini in 1996 - oversees merchandising and retail departments.
Bachelor of Accountancy, University of Malaya
Chong Chin Lin
Executive Director
 Joined Padini in 1981 - oversees garment manufacturing operations. Almost two
decades experience in ladies fashion prior to joining Padini
Yong Lai Wah
Executive Director
 Joined Padini in 1971 - oversees cafe operations of Seed Corporation. Four
decades experience spanning manufacturing and selling of fashion
Sahid bin Mohamed Yasin
Independent NonExecutive Director
 Almost four decades experience in public service and the private sector.
Postgraduate Diploma, Management Science, BA, Economics, University of
Malaya
Foo Kee Fatt
Independent NonExecutive Director
 Twenty four years of accounting and audit practice. Member of MICPA and MIA
Source: Company

A full fashion house
8 diverse brands. Padini Holdings’ product portfolio spans 8 diverse
fashion labels, catering to age profiles from 3 – 30 years, ranging from
stylish office attire, casual wear, to niche fashion designs both
contemporary and edgy, as well as shoes, handbags and fashion
accessories. Each label is operated by separate teams and the group
has more than 1,000 stock-keeping units (SKUs) for all its brands.
Chart 3: Padini’s brand portfolio
Padini
Garments for office and official occasions.
Targets modern executives and managers,
male and female, between their mid 20’s
and late 30’s.
Padini Authentics
Casual wear for leisure, vacations,
weekends, college. Moderately trendy and
caters for both genders between 5 and 45.
There is also a product line for children
(from toddlers to pre-teens).
PDI
Basic, easy to mix and match garments.
Designed for both genders from the teens to
the 30’s.
Source: Company
14 July 2011 Page 3 of 13
Padini Holdings Berhad
Chart 4: Padini’s brand portfolio (continued…)
P&Co
Edgy, experimental fashion. For females
and designed for those between the mid
teens and mid 20’s
Seed
Contemporary adult fashion designed for
those between the 20’s and the early 30’s of
both genders. There is also a kid-cum-junior
line for those from 3 to pre-teens.
Vincci
Affordable and fashionable shoes for all
females from their teens onwards. Trendy
fashion accessories are also offered as a
line separate from the shoes.
Vincci+
A breakaway from Vincci with more
emphasis on higher end handbags. Shoes
are offered but as a complement only.
Miki Kids and Miki Maternity
Miki Kids: Children’s wear catering for those
between 3 to 13.
Miki maternity: Maternity line that carries a
range of practical and fashionable clothing.
Source: Company
Strong in-house designing team. What sets it apart from most of
other textile players is that the group has its own designing team to
capture consumers’ preference. By doing this, Padini retains firm
control of the crucial part of the value chain, the creative design portion
which is harder to replicate but highly scalable.
Outsourcing manufacturing, boosting margins. Padini has
emulated the strategy of leading fashion firms, contracting out the asset
intensive manufacturing segment of operations. By shedding factories,
Padini follows the proven strategy of the likes of Nike, Tommy Hilfiger
and Calvin Klein, allowing the group to get better pricing and quality for
its products. This is due to the different specialization needed for
manufacturing different fabrics and the management of raw materials.
Further, by selling its own brands, Padini enjoys better profit ratios than
other players that only distribute 3rd party brands.
14 July 2011 Page 4 of 13
Padini Holdings Berhad
Padini’s textile manufacturing is outsourced to China while its Vincci
shoes are outsourced to manufacturers in Ipoh. In the case of the latter,
the proximity allows for quicker market response.
“Affordable Trendy” niche. We attribute Padini’s success to the
positioning of its fashion labels, namely Padini, Padini Authentics, PDI
and SEED as affordable but trendy products, characteristics highly
appealing to its focus market of above average income earners in the
20-30 year-old age bracket.
Moreover this is, by and large, the age most couples start families,
Padini’s line extensions into the maternity and children’s wear markets
via Miki Maternity and Miki Kids, would be a natural progression to
capture likely additional spending form the same focus market.
And regardless of marital status, fashion accessories like handbags,
shoes, belts and sunglasses are complementary products to the
customers of the fore mentioned brands, which Padini leverages off
with the introduction of Vincci (shoes) and Vincci+ (higher-end
handbags and shoes).
Chart 5: 3-year revenue breakdown by segments
3%
3%
3%
6%
2%
3%
9%
11%
35%
18%
3%
34%
33%
17%
15%
35%
35%
35%
FY09: RM475.5m
FY08: RM383.3m
Vincci
Padini
Seed
Vincci
Brands Outlet
Mikihouse
Others
Brands Outlet
FY10: RM520.9m
Padini
Seed
Vincci
Padini
Seed
Mikihouse
Others
Brands Outlet
Mikihouse
Others
Sources: Company, Maybank-IB
Chart 6: 3-year PBT breakdown by segments
2%
14%
47%
2%
2%
50%
Padini
Brands Outlet
Mikihouse
31%
2%
2%
53%
FY09: RM64.0m
FY08: RM55.0m
Seed
Vincci
Padini
Brands Outlet
Mikihouse
7%
7%
34%
35%
Vincci
12%
Seed
Vincci
Brands Outlet
FY10: RM92.0m
Padini
Seed
Mikihouse
Sources: Company, Maybank-IB
Domestically driven sales. Padini presently derives 90% of its sales
from within Malaysia while about 10% of its sales are exported to
countries such as Hong Kong, the Middle East and Thailand. Overseas,
Padini does not own its own stores, but its products are distributed
primarily through franchise/dealer stores, of which there are about 93
presently. Expansion abroad is on the cards but this is not likely to
materialize over the next two years. Management recognizes the need
to venture overseas but believes there is still much room for growth
domestically.
14 July 2011 Page 5 of 13
Padini Holdings Berhad
Moving out of consignment counters
Better off via own stores. The group has gradually shifted its focus
from consignment counters to running its own single-brand stores since
2005. Despite higher overheads, the group enjoys better control of its
fittings design, pricing, advertising and promotion and inventory
management. Since the commencement of its own store business, the
contribution of consignment sales to total revenue has dropped from a
peak of 80% to 15% currently. However, the group continues to
maintain its consignment channels to create brand awareness and
extend market reach to capture shoppers who prefer to visit
departmental stores.
Chart 7: Revenue breakdown (sales channel)
Consignment
17.7
16.9
(%)
18
17
16.1
14
73.4
73.4
2006
2007
2008
2009
2010
10.8
9.4
9
69.1
9.1
8.9
7
68
12
Others
14.8
11
72
70
13
(%)
15
13
73.7
74
14.5
15
76.4
76
15.8
16
Own Stores
(%)
78
5
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Sources: Company, Maybank-IB
Then came the Padini Concept Stores. With an ideal size of 20,000
sq ft, the idea is to have all brands under one umbrella i.e., a bigger
store. This would enhance brand awareness while encouraging more
browsing and cross-selling of the other brands. Positioning itself as a
one-stop fashion hub, Padini Concept Stores provide consumers the
convenience to mix and match items while cutting down on the time
spent hopping from one store to another. As a multi-brand store is
easily 4x the size of a single-brand store, it is able to obtain lower rental
per sq ft. Hence, the group is constantly looking to merge its singlebrand stores into bigger multi-brand concept stores, subject to
availability in the shopping mall.
Finally, the Brands Outlet. In Dec 2006, Padini introduced a new
concept to move the group’s store presence to the next level with the
launch of their “Brands Outlets” which carry a mixture of in-house and
third party consignment brands. A Brands Outlet occupies up to 20,000
sq ft, thus reducing the rental rates. It features about 15 value-formoney brands and yet incur only about half the cost of store fittings vs.
other Padini stores due to the value-conscious focus of their target
customers. Brands Outlet need not lavish extra on trimmings and
tassels to do brand differentiation within its stores. Presently, Padini
has 4 Brands Outlets located in Selangor and the other 9 stores in
other states.
14 July 2011 Page 6 of 13
Padini Holdings Berhad
Table 3: Retail networks for the 5 business segments
FY2007
FY2008
FY2009
FY2010
17
1
10
17
1
10
19
0
12
22
0
12
9
15
19
20
13
13
10
19
11
23
9
24
16
12
14
11
4
25
3
29
3
33
2
34
4
2
1
1
10
30
5
38
5
49
5
49
1
5
8
10
19
8
180
21
10
197
24
11
232
24
10
233
Vincci, Vincci+, Vincci Accessories
Stores
Consignment counters
Franchise stores
Multi-brands Concept Store
Stores
Padini Authentics
Stores
Consignment counters
PDI
Stores
Padini
Stores
Consignment counters
P&Co
Stores
Seed
Stores
Consignment counters
Brands Outlet (Yee Fung Hong)
Stores
Miki
Consignment counters (Kids)
Consignment counters (Maternity)
Total
Source: Company
Monetising brand value. In the early days, Padini placed its wares on
consignment at the other stores and margins were thin (c. 4% pretax
profit margins vs. about 17% from own store sales). Now, multiple
smaller labels place their products in Brands Outlet earning Padini
commissions. Commissions earned from consignors is however
marginal, RM4m in FY10 (<1% of sales) and likely to remain so, but we
are encouraged by the rising trend as we believe it shows other
garment players acknowledge the branding power which the “Padini”
name has achieved among consumers. Nonetheless, Chart 8 also
shows that Brands Outlet is selling more and more of its own brands
which enable it to expand profit margins, rather than renting space out
to third party labels.
Chart 8: Increasing commission income in Brands Outlet
(RM m)
Brands Outlets (RHS)
Comm. Income (LHS)
5
3.8
4
3
2
(No of outlets)
15
4.2
12
9
2.4
1.2
6
1.5
1
3
0
0
2006
2007
Sources: Company, Maybank-IB
14 July 2011 Page 7 of 13
2008
2009
2010
Padini Holdings Berhad
Fine tuning the supply chain. RM18m was spent on a new
warehouse in Shah Alam (completed in Dec 2010) replacing its old
facilities, enabling the group to support its extensive retail network more
efficiently. An Enterprise Resource Planning (ERP) system which it
launched in June 2010 will definitely improve the efficiency in staff and
inventory related matters but we think it will need one to two years to
reach the full potential of the system solution, before the group can
expand the overseas business on a larger scale.
Earnings Outlook
Brands Outlet is not about brands. While the group has already
positioned itself as a one-stop fashion hub with its 8 in-house labels for
consumers across different age groups and gender, taking into account
varied taste and functionality, “Brands Outlet” offers the same with
better affordability. Its layout is designed to be shopper-friendly, both to
let consumers know where to get what they want, while bringing other
similar apparels into their visual sphere, unlike other factory outlet
stores where rejected goods are just scattered around.
The on-going roll out of “Brands Outlets” is the next game changer for
the group and we are looking at a 15.3% net profit CAGR over the next
two years (FY11-FY13). We expect the group to open about 6 Brands
Outlet stores in the next 12 months, with 3 of them in East Malaysia:

1 store in Klang Valley (1 Utama)

1 store in Shah Alam (Setia City Mall)

1 store in Kuching (The Spring)

1 store in Penang (1st Avenue)

2 stores in Kota Kinabalu (Suria Sabah & One Borneo)
As a business model, the Brands Outlet is cheaper to run with lower
staff cost and lower overheads. This in itself, provides some buffer
against rising rental rates at prime retail malls. Moreover, with a
standard size of 10,000-20,000 sq ft, we believe these outlets could
have an upper hand bargaining for lower rental rates.
But still developing the rest of the business... Padini’s traditional
businesses will remain a mainstay, and there will be a continued push
in terms of store expansion, particularly that of Concept Stores. We
expect 2 Padini Concept Stores to be opened over the next 12 months
in:
14 July 2011 Page 8 of 13

Shah Alam (Setia City Mall)

Petaling Jaya (The Paradigm)
Padini Holdings Berhad
…and this is not the last piece of the full picture. We have already
witnessed management’s uncanny ability in the past to maintain sales
momentum by constantly growing new fashion labels and optimising its
business model. As each of the four labels’ growth rates peaked,
management brought in a new label. Based on how Padini progressed
from just consignment sales to running its own single-brand stores,
expanding into larger multi-brand concept stores and now with the roll
out of “Brands Outlet” stores, we are encouraged by management’s
capability and courage to make changes to generate growth in future.
9M FY11 net profit up 16.9% YoY. Group revenue for the period was
relatively flat, rising just 4.4% YoY due in part to slower new store
expansion in FY10 (2 new Brands Outlet stores and 1 new concept
store). What is positive, nevertheless, is that gross profit margins have
expanded quite significantly during this period, from 49% in 9MFY10 to
54% in 9MFY11. This was largely the product of the better overall sellthrough rates achieved by most of the merchandise during the period,
which in turn may be attributed to better inventory management.
4QFY11 is traditionally a quieter period. The group’s fourth quarter is
traditionally the weakest quarter and as such, we do expect sales to
come in slower QoQ. Against our full-year revenue forecast of
RM540m, we project 4Q revenue of RM114m, almost 23% lower QoQ,
but we expect revenue to be stable YoY. We forecast 4Q net profit of
RM11.5m, about similar to group net profit of RM11.8m in 4QFY10.
Overall, we forecast net profit growth of 12.7% YoY in FY11.
Padini: Results Summary Table
Quarterly
FY Jun (RM m)
Sales
Cost of Goods Sold
Gross Profit
Administrative Expenses
Selling and Marketing Expenses
EBIT
Interest Income
Interest Expense
Pretax Profit
Tax
Net Profit
Gross profit margin (%)
EBIT margin (%)
Tax rate (%)
3QFY11
148.0
(59.2)
88.8
(6.3)
(50.7)
31.8
1.9
(0.3)
33.4
(9.0)
24.4
3QFY10
139.4
(72.0)
67.4
(7.7)
(38.2)
23.1
1.0
(0.2)
23.8
(6.6)
17.3
60.0
21.5
26.9
48.4
16.6
27.5
% YoY
6.1
(17.8)
31.6
(18.8)
32.8
37.7
95.6
40.8
40.0
36.8
41.2
+/- p.pts
YoY
11.6
4.9
(0.6)
Cumulative
2QFY11
141.8
(71.8)
70.0
(18.7)
(32.6)
18.7
2.1
(0.5)
20.3
(5.8)
14.5
49.4
13.2
28.5
% QoQ
4.3
(17.6)
26.8
(66.4)
55.4
70.5
(10.9)
(35.7)
64.6
55.2
68.4
+/- p.pts
QoQ
10.6
8.3
(1.6)
9MFY11
426.4
(195.3)
231.1
(32.8)
(123.0)
75.3
5.1
(1.1)
79.3
(22.1)
57.2
9MFY10
408.6
(207.1)
201.5
(21.1)
(117.0)
65.0
3.3
(0.8)
67.5
(18.5)
48.9
54.2
17.7
27.8
49.3
15.9
27.5
% YoY
4.4
(5.7)
14.7
55.3
5.2
15.9
52.3
28.9
17.5
19.0
16.9
+/- p.pts
YoY
4.9
1.8
0.3
Source: Company
Forecast revenue growth of 14-16% in FY12-FY13. We expect
revenue growth to gather momentum over the next two years, primarily
as a result of contributions from new stores. In FY11, Padini opened 3
new Brands Outlets and 2 new concept stores. FY12 should see a fullyear’s contribution from these outlets. A further 6 Brands Outlets will be
opened in FY12 along with 2 concept stores, and we expect these new
stores to sustain sales growth momentum into FY13. Built into our
assumption is of average sales per store to grow 5.5 % in FY12 and
3.8% in FY13.
14 July 2011 Page 9 of 13
Padini Holdings Berhad
EBITDA margins to sustain at the 21-22% level. Over the longer
term, we would expect some level of gross profit margin erosion as
contributions from lower value-added Brands Outlets increase.
However, as the overheads on these outlets are also typically lower
than that of Padini’s other single-brand / multi-brand concept stores,
group EBITDA margins are likely to be less affected, in our view. Over
the next two years, we expect group EBITDA margins to be sustainable
at around 21.5%. With the implementation of its ERP system and new
Shah Alam warehouse, we expect better inventory management and
cost containment moving forward.
Capex to remain stable. A Brands Outlet typically averages about
12,000 sq ft in floor space and incurs on average RM100 psf on store
fittings. A Concept Store, on the other hand, is about 15,000 sq ft each
and store fittings are about RM200 psf. With potentially 6 new Brands
Outlet and 2 new Concept Stores this year, fittings would cost about
RM13m. Against expected capex of about RM28m in FY11, we expect
capex in FY12 to remain relatively stable at about RM25m-RM30m.
Margins are higher than that of its peers. Padini’s pretax profit
margin of 16% is higher than that of the industry average of about 12%.
This, we believe, may be attributed to factors such as (i) better
bargaining power given its scale, (ii) increasing contributions from its
own stores as opposed to consignment sales and (iii) the outsourcing
of its manufacturing operations, (iv) strong own brands.
Attractive ROEs. Versus its peers, Padini’s ROEs of more than 25%
are significantly superior to that of its local peers in the retail industry,
where the average is about 17%. We expect ROEs to remain high and
forecast an ROE of 26% in FY12 and 25% in FY13.
Chart 9: Higher net profit margin
(%)
2010
Chart 10: Better ROE than local peers
2009
(%)
30
2010 average Net Margin: 9%
25
14
12
10
2010
2009
20
8
2010 average ROE: 17%
15
6
10
4
5
2
0
0
Padini
Cheetah
Sources: Company, Maybank-IB
14 July 2011 Page 10 of 13
Bonia
Hing Yiap
VOIR
Padini
Bonia
Sources: Company, Maybank-IB
Cheetah
Hing Yiap
VOIR
Padini Holdings Berhad
Valuations
A proven business model, an enviable track record. We like Padini
for its resilient business model as proven by the revenue growth
achieved even during the two economic recessions since listing. That
the group has sustained uninterrupted revenue growth since its listing
in 1998, particularly in such a competitive industry, is a very strong
testament to the capabilities of the management team that has been
able to innovate and move with the times.
Target price of RM1.30. In deriving our target price for Padini, we have
tagged on a PER of 10.2x to the group’s 2012 calendarised EPS, in line
with average valuations of its peers in the fashion retailing industry.
Padini is smaller than most of its regional peers in terms of market
capitalization and it is a domestic-focused retailer at this stage.
Nevertheless, its fundamentals are superior in many ways, with aboveaverage ROEs, higher operating margins, a healthy balance sheet, and
a proven financial track record.
Table 4: Peer Comparison (Calenderised)
Company
Bloomberg
Ticker
Shr px
Market
Cap
(local ccy)
(RM’ m)
PE (X)
ROE
2012
2013
(x)
(x)
(%)
3-yr EPS
CAGR
EBIT
Margins
Net
Gearing
Div. Yld
P/BV
(%)
(%)
(%)
(%)
(X)
(2009-12)
GAP Inc
GUESS Inc
Esprit
Benetton
Giordano Int.
FJ Benjamin
French Conn.
GPS US
GES US
330 HK
BEN IM
709 HK
FJB SP
FCCN LN
18.75
40.73
22.70
5.24
6.20
0.37
73.25
31,211.8
11,405.3
11,370.6
4,070.3
3,650.0
520.1
338.6
11.1
10.1
6.9
10.0
13.4
11.4
8.8
9.4
9.1
6.0
9.0
12.4
nm
nm
25.5
36.2
20.7
5.4
24.7
10.5
nm
7.7
20.6
(4.2)
(9.7)
33.7
nm
(178.4)
13.4
16.7
12.9
10.1
13.1
1.6
1.7
(52.6)
(47.3)
(25.8)
34.7
(39.2)
(5.4)
(49.4)
2.3
3.6
7.7
4.5
4.9
5.1
0.0
2.8
3.4
1.6
0.6
3.9
1.6
1.0
Simple Ave.
PADINI
PAD MK
1.05
690.8
10.2
9.4
9.2
8.2
20.5
26.5
9.6
16.8
11.3
17.4
(22.6)
(61.1)
4.7
3.8
2.3
2.3
Sources: Bloomberg, Maybank-IB
14 July 2011 Page 11 of 13
Padini Holdings Berhad
INCOME STATEMENT (RM m)
FY Jun
BALANCE SHEET (RM m)
2010A
2011F
2012F
2013F
FY Jun
Revenue
EBITDA
Depreciation & Amortisation
Operating Profit (EBIT)
Interest (Exp)/Inc
Associates
One-offs
Pre-Tax Profit
Tax
Minority Interest
Net Profit
Recurring Net Profit
520.9
107.0
(21.8)
85.2
1.1
0.0
0.0
86.3
(25.3)
0.0
61.0
61.0
540.9
116.8
(23.3)
93.6
1.8
0.0
0.0
95.4
(26.7)
0.0
68.7
68.7
611.9
133.7
(26.7)
106.9
2.6
0.0
0.0
109.6
(30.6)
0.0
78.9
78.9
714.4
152.1
(29.1)
123.0
3.9
0.0
0.0
126.9
(35.5)
0.0
91.5
91.5
Revenue Growth %
EBITDA Growth (%)
EBIT Growth (%)
Net Profit Growth (%)
Recurring Net Profit Growth (%)
Tax Rate %
9.5%
21.3%
24.4%
23.1%
23.1%
29.3%
3.8%
9.2%
9.8%
12.7%
12.7%
28.0%
13.1%
14.4%
14.3%
14.8%
14.8%
28.0%
16.8%
13.8%
15.1%
15.9%
15.9%
28.0%
2010A
2011F
2012F
2013F
86.3
21.8
(1.1)
24.7
(26.7)
(11.5)
93.5
(25.6)
0.0
(0.8)
(26.4)
0.0
0.0
95.4
23.3
(1.8)
(7.9)
(30.0)
(17.9)
61.1
(28.1)
0.0
10.0
(18.1)
0.0
0.0
109.6
26.7
(2.6)
10.6
(34.4)
(23.7)
86.2
(30.9)
0.0
0.0
(30.9)
0.0
0.0
126.9
29.1
(3.9)
(3.7)
(39.3)
(22.4)
86.7
(34.0)
0.0
0.0
(34.0)
0.0
0.0
0.0
3.1
3.1
70.2
0.0
(1.3)
(1.3)
41.7
0.0
(1.8)
(1.8)
53.5
0.0
0.6
0.6
53.3
CASH FLOW (RM m)
FY Jun
Profit before taxation
Depreciation
Net interest receipts/(payments)
Working capital change
Cash tax paid
Others (incl'd exceptional items)
Cash flow from operations
Capex
Disposal/(purchase)
Others
Cash flow from investing
Debt raised/(repaid)
Equity raised/(repaid)
Interest payments
Others
Cash flow from financing
Change in cash
Source: Company, Maybank IB
14 July 2011 Page 12 of 13
2010A
2011F
2012F
2013F
Fixed Assets
Other LT Assets
Cash/ST Investments
Other Current Assets
Total Assets
80.0
12.3
135.0
129.3
356.6
84.8
11.8
175.8
143.5
415.8
89.0
11.4
227.7
142.1
470.2
93.9
16.5
280.0
164.5
554.9
ST Debt
Other Current Liabilities
LT Debt
Other LT Liabilities
Minority Interest
Shareholders' Equity
Total Liabilities-Capital
26.1
85.2
10.1
0.8
0.0
234.3
356.6
20.0
101.7
15.0
2.3
0.0
276.8
415.8
22.0
105.6
11.3
2.0
0.0
329.4
470.2
26.4
124.7
7.5
1.8
0.0
394.5
554.9
Share Capital (m)
Gross Debt/(Cash)
Net Debt/(Cash)
Working Capital
65.8
36.3
(98.8)
153.0
65.8
35.0
(140.8)
197.5
65.8
33.3
(194.5)
242.2
65.8
33.9
(246.1)
293.4
FY Jun
2010A
2011F
2012F
2013F
EBITDA Margin %
Op. Profit Margin %
Net Profit Margin %
ROE %
ROA %
Net Margin Ex. El %
Dividend Cover (x)
Interest Cover (x)
Asset Turnover (x)
Asset/Debt (x)
Debtors Turn (days)
Creditors Turn (days)
Inventory Turn (days)
Net Gearing %
Debt/ EBITDA (x)
Debt/ Market Cap (x)
20.5%
16.4%
11.7%
27.8%
18.8%
11.7%
3.1
NA
1.5
9.8
11.3
63.2
107.7
NA
0.3
0.1
21.6%
17.3%
12.7%
26.9%
17.8%
12.7%
2.6
NA
1.3
11.9
15.3
63.2
107.7
NA
0.3
0.1
21.8%
17.5%
12.9%
26.0%
17.8%
12.9%
3.0
NA
1.3
14.1
15.3
63.2
86.1
NA
0.2
0.0
21.3%
17.2%
12.8%
25.3%
17.8%
12.8%
3.5
NA
1.3
16.4
15.3
63.2
82.0
NA
0.2
0.0
RATES & RATIOS
Padini Holdings Berhad
Definition of Ratings
Maybank Investment Bank Research uses the following rating system:
BUY
HOLD
SELL
Total return is expected to be above 10% in the next 12 months
Total return is expected to be between -5% to 10% in the next 12 months
Total return is expected to be below -5% in the next 12 months
Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investm ent ratings are
only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not
carry investment ratings as we do not actively follow developments in these companies.
Some common terms abbreviated in this report (where they appear):
Adex = Advertising Expenditure
BV = Book Value
CAGR = Compounded Annual Growth Rate
Capex = Capital Expenditure
CY = Calendar Year
DCF = Discounted Cashflow
DPS = Dividend Per Share
EBIT = Earnings Before Interest And Tax
EBITDA = EBIT, Depreciation And Amortisation
EPS = Earnings Per Share
EV = Enterprise Value
FCF = Free Cashflow
FV = Fair Value
FY = Financial Year
FYE = Financial Year End
MoM = Month-On-Month
NAV = Net Asset Value
NTA = Net Tangible Asset
P = Price
P.A. = Per Annum
PAT = Profit After Tax
PBT = Profit Before Tax
PE = Price Earnings
PEG = PE Ratio To Growth
PER = PE Ratio
QoQ = Quarter-On-Quarter
ROA = Return On Asset
ROE = Return On Equity
ROSF = Return On Shareholders’ Funds
WACC = Weighted Average Cost Of Capital
YoY = Year-On-Year
YTD = Year-To-Date
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This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation
of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each
security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental
ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on
price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may
receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to
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14 July 2011 Page 13 of 13