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QL Resources BIMB SECURITIES RESEARCH Thursday, 19 July, 2012 MARKET INSIGHT Re-Initiate Coverage PP16795/03/2013(031743) Padini Holdings Buy▲ Great Brand Comes with Great Value Price RM1.92 Target Price (+14.2% upside)RM2.13 Stock Data We are re-initiating our coverage on Padini Holdings with a Bloomberg Ticker PAD MK Altman Z-score 5.4 BUY recommendation based on a target price of RM2.13 Market Cap Equity1,217.1 YTD price chg 69.7% Issued shares 657.9 YTD KLCI chg 4.4% which is derived by pegging a PER of 12x over FY13 EPS of 52-week range (H) 1.88 Beta 1.3 17.8 sen. We believe Padini to enjoy solid earnings growth 52-week range (L) 0.82 Major Shareholders going forward due to (i) an aggressive outlet expansion by 3-mth avg daily volume 1,669,835 Pang Chaun Yong 44.0% end FY12, (ii) Malaysia’s youthful population with high Free Float 47.6% Skim AmanahSaham 5.0% propensity to spend and (iii) positive outlook in the Shariah Compliant Y BuCapital Dynamics Ass 3.5% country retail industry. Share Performance (%) 1mth 3mth 12mth A regional brand. Padini is one of the very few “Made in Absolute 20.0 30.9 82.3 Malaysia” retail brands that has foot prints across the region vs. KLCI 67.2 27.8 67.2 namely Thailand, Brunei, Saudi Arabia, the Philippines, Cambodia, Egypt, Oman, United Arab Emirates, Indonesia, Financial Highlights Syria, Pakistan, Qatar, Bahrain and Morocco. FYE 30 June 2009 2010 2011 2012E 2013E (RMm)Revenue 475.5 518.8 568.5 732.9 850.2 Bountiful profits in store. Padini has been unrelenting in EBIT 70.0 86.3 106.1 134.1 159.5 Pre-tax profit 67.6 86.3 105.1 131.1 155.9 expanding its retail space every year. The number of stores Net Profit 49.5 61.0 75.7 98.3 117.0 will have a major impact to the Group as their sales growth EPS (sen) 7.5 9.3 11.5 14.9 17.8 is mainly generated from new expansion of gross floor area EPS growth (%) 18.7% 23.1% 24.1% 29.9% 19.0% (new retail space). For FY12, Padini has budgeted about PER (x) 24.6 20.2 16.3 12.8 10.7 DPS (sen) 2.7 4.5 4.0 6.0 7.0 74,000 sq ft gross floor for 2 Padini Concept Stores and 3 Div. Yield (%) 1.4% 2.4% 2.1% 3.1% 3.7% Brands Outlet stores by end of FY12. NTA/share (RM) 0.3 0.4 0.4 0.6 0.6 EPS (sen) 7.5 9.3 11.5 14.9 17.8 Positive retail outlook. The Distributive Trade Sector comprises of wholesale trade, retail trade and motor EBIT margin 14.7% 16.6% 18.7% 18.3% 18.8% vehicles as the three main sub-sectors. Sales value of Pre-tax margin 14.2% 16.6% 18.5% 17.9% 18.3% Distributive Trade sector in 1Q2012 increased to Effective tax rate 26.7% 29.3% 27.9% 25.0% 25.0% ROE 26.5% 27.8% 29.3% 30.4% 32.0% RM204.1bn or 9.2% as compared with 1Q2011. The retail trade sub-sector recorded the highest percentage growth in Growth ratios sales value circa. 10.7% or to RM9.1bn, followed by Turnover 24.05% 9.12% 9.57% 28.93% 16.01% wholesale trade of 10.2% and motor vehicles with 2.6% as EBIT 21.20% 23.26% 22.99% 26.36% 18.91% compared to the previous year. Pre-tax profit 17.26% 27.61% 21.76% 24.76% 18.98% Net profit 18.74% 23.10% 24.14% 29.87% 18.98% Proven track record. Padini’s track record over the last 5 Share Price Chart years had been impressive. During the period, the group has 2.00 consistently delivered positive revenue and net profit CAGR of 15% and 22% respectively. As Padini targets mainly the 1.80 younger generation, we believe the Group’s growth 1.60 momentum is set to continue supported by the increasing 1.40 young population in the country. We expect Padini to 1.20 register net profit of RM98.3m and RM117m for FY12 and 1.00 FY13 respectively, mainly driven by outlet expansion and 0.80 positive consumer sentiment. 0.60 View & Valuation. We are re-initiating coverage on Padini 0.40 Group Berhad with a Target Price of RM2.13 based on a 5- Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 year average PER Band of 12x over FY13 EPS of 17.8sen. This The Research Team translates into potential total return of 14.2%, including the [email protected] expected dividend yield of 3%. Re-initiate with a BUY 03-26918887 ext 111 recommendation. | 1 19 July 2012 Re-Initiate Coverage: Padini Holdings BUSINESS PROFILE Brief background. Padini Holdings Berhad (Padini) was incorporated in 1971 and started its business in manufacturing & wholesaling before venturing into trading, distribution and retailing. Mr Yong Pang Chaun, whom is the present managing director and also a substantial shareholder with a 44.0% stake, is also the founder of the group. Over the years, the group has developed their retail business for the low to middle income level. Started life as a manufacturer and supplier of garments around the early 70’s, the group then made inroads into the retail scene some years later with its diversified flagship brand. To date, Padini has over 41 years under its belt and is still going strong. Company History 1971 • Group started as manufacturer cum wholesaler of women's fashion • PADINI, VINCCI & MIKI brands established to distribute men's, women's 1975 - 87 and children's wear 1988 • Switch from wholesaler to consignor 1990 • SEED label established to distribute contemporary fashion 1992 • First of the Group's single brand retail store opened • VINCCI ceased its apparels line; full emphasis on women's fashion shoes; 1994 PADINI AUTHENTICS established 1998 • Listing of Padini Holdings Berhad on the KLSE Second Board • First of the Group's multi-brand concept store opened; two more labels, 1999 P&Co and PDI added 2004 • Padini Holdings Berhad moved to the KLSE Main Board 2006 • First of the Group value stores, Brands Outlet, opened 2009 • Padini brand was valued by Interbrand at RM245 million • An implementation of an ERP solution from SAP, started in August 2008, 2010 finally went "live" in June 2010 Source : Company Well-established fashion labels. Currently Padini owns 9 well-established fashion labels: Vincci, Vincci+, Vincci Accessories, Padini, Padini Authentics, PDI, Seed, Miki and P&Co. Each of their distinct labels represents a particular fashion philosophy that encompasses a comprehensive range of products that fit into their targeted consumer’s universe. www.bimbsec.com.my | 2 19 July 2012 Re-Initiate Coverage: Padini Holdings Group’s Trading Subsidiary PADINI GROUP Vincci Ladies Mikihouse Padini Seed Yee Fong Hung Specialties Corporation Corporation Children's Wear Source: Company, BIMB Securities PRINCIPAL ACTIVITIES A regional retail player. Already an established retailer domestically, Padini had embarked on its regional expansion and have embedded their presence in Thailand, Brunei, Saudi Arabia, Philippines, Cambodia, Egypt, Oman, United Arab Emirates, Indonesia, Syria, Pakistan, Qatar, Bahrain and Morocco. For overseas markets, the products are sold mostly through retail stores managed by licensees and dealers. Well-diversified. Today, Padini is a leader in the domestic textile and garment industry with extensive network retailing its labels via freestanding stores, multi-brand Padini Concept Stores (PCS), franchised outlets and consignment counters in Malaysia and overseas. As at 2011, Padini operates 45 single brand stores, 22 multi-brand concept stores and 13 Brands Outlet stores. On top of that, Padini also involves in the distribution and retailing of its own fashion labels through 140 consignment outlets and 14 franchise stores and dealer stores throughout the nation. For markets abroad, the products are sold mostly through retail stores managed by licensees and dealers. The increasing and declining number of stores will have a major impact to the company as their sales growth is generated from new expansion of gross floor area (new retail space). Retail Distribution Network Retailing Free Standing Multi Brand Brands Franchise Dealer Consignments Store Store Outlet Store Store Store Source: Company, BIMB Securities Affordability + Extensive = Brands Outlet. In addition, the Group also utilizes a great number of lesser known house brands to market as value-for-money merchandise in its Brands Outlet (BO) stores. BO is the personification of shopping convenience, variety and affordability. Another feature of BO is that the store layout is designed to make the shopping experience easy and fun and is well-organised to showcase the extensive options within each product category. BO has grown exponentially from 2006 to become a substantial earnings driver, contributing 20% to group revenue in Q1FY12. From the first store opened in Dec 2006 at Ampang Point BO now cover a total gross floor area of 197,335 sq ft. www.bimbsec.com.my | 3 19 July 2012 Re-Initiate Coverage: Padini Holdings Padini Concept Store Outlet Brands Outlet Source: Padini Padini’s Brands Portfolio Brand Sample Brands Description Padini Provides chic, formal and smart casual wear for today’s young executives. Office attire range includes tailored suits, separates, shirts, slacks and knitwear. Designed with a contemporary feel for modern executives and managers between the mid 20’s and late 30’s; both genders Padini Authentics A casual line for men, women and kids to reflect a relaxed and easy lifestyle; this line includes jeans wear, active wear, nauticals, khakis, knitwear and sweaters, and a range of accessories that is consistent with the label’s casual image.
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