Company Focus

Padini Holdings
Refer to important disclosures at the end of this report

Bloomberg: PAD MK | Reuters: PDNI.KL

Malaysia Equity Research

27 Nov 2014

HOLD RM1.77
RM1.77 KLCI : 1,842.17

Dressing down

(Downgrade from BUY)

Price Target : 12-Month RM 1.77 (Prev RM 2.45)
Shariah Compliance : No
Reason for Report : 1Q15 Results
Potential Catalyst: Stronger than expected SSG growth
AllianceDBS vs Consensus: Inline
Analyst
King Yoong CHEAH CFA +603 2604 3908
cheahky@alliancedbs.com

RM

Relative Index
245

2.5

225

2.3
2.1

205

1.9

185

1.7

165

1.5

145

1.3

125

1.1

105

0.9
Nov-11

Padini Holdings (LHS)

Nov-12

Nov-13

85
Nov-14

Relative KLCI INDEX (RHS)

Forecasts and Valuation

FY Jun (RM m)
2013A
2013A
Revenue
790
EBITDA
139
Pre-tax Profit
118
Net Profit
85
Net Pft (Pre Ex.)
86
EPS (sen)
13.0
EPS Pre Ex. (sen)
13.0
EPS Gth (%)
(10)
EPS Gth Pre Ex (%)
(10)
Diluted EPS (sen)
13.0
Net DPS (sen)
8.0
BV Per Share (sen)
56.6
PE (X)
13.6
PE Pre Ex. (X)
13.6
P/Cash Flow (X)
7.3
EV/EBITDA (X)
7.0
Net Div Yield (%)
4.5
P/Book Value (X)
3.1
Net Debt/Equity (X)
CASH
ROAE (%)
24.0
Earnings Rev (%):
Consensus EPS (sen
sen):
sen :
Other Broker Recs:

2014A
2014A
866
147
126
91
91
13.8
13.8
6
6
13.8
11.5
58.9
12.8
12.8
27.2
7.1
6.5
3.0
CASH
23.5

2015F
2015F
984
160
133
97
97
14.7
14.7
7
7
14.7
12.2
61.4
12.0
12.0
9.1
6.4
6.9
2.9
CASH
24.5

2016F
2016F
1,081
180
154
113
113
17.1
17.1
16
16
17.1
14.2
64.3
10.4
10.4
9.7
5.6
8.0
2.8
CASH
27.2

0
N/A
B: 5

(16)
15.5
S: 1

(14)
17.0
H: 2

ICB Industry : Consumer Goods

ICB Sector: Personal Goods
Principal Business: Apparel and accessories retailer with
overwhelming domestic presence as well as exposure in high end,
mid-end and value clothing segments for all age groups.

Source of all data: Company, AllianceDBS, Bloomberg Finance L.P.

Refer to important disclosures at the end of this report

1QFY15 earnings missed expectations due to

drop in margins

Margins are unlikely to recover; cut forward

earnings by 13%- 16%

Cut TP to RM1.77; downgrade to HOLD

Missed expectations. Core earnings in 1QFYJune15 of

RM19m, accounted for only 16% and 18% of our and
consensus full year estimates, respectively.

Price Relative

0.7
Nov-10

Revenue on track but margins were below expectations.

1Q15 revenue grew by 4% y-o-y, driven by same- store- sales
growth (SSSG) of 8% and 3% for Brands Outlet and Padini
Concept stores, respectively. Nonetheless, 1Q15 gross margins
dropped by 2ppts y-o-y to 45%, below our full year target
46.2%. The weaker margin was due to more aggressive sales
campaigns engaged by the group during the quarter. The
group declared an interim DPS of 2.5sen, which is within
expectations.
Margin unlikely to recover, cut forward earnings. In
view of the increasingly competitive operating environment
and weaker consumer sentiment, we believe that the group
will need to continue its sales campaigns to maintain its
dominant market position. As such, we do not expect profit
margins to recover going forward. We cut FY15-FY17F
earnings by 16%/ 14%/ 13%, on lower gross profit margin
assumptions of 45.3%/45.1%/45.1% (previously 46.2%/
46.1%/46.1%)
Cut TP to RM1.77, downgrade to HOLD. With the lower
earnings forecast, earnings growth for FY15 is projected to be
only 7% (vs previous forecast of 27%). Given the unexciting
single digit earnings growth, we believe that the group no
longer deserves a premium PE valuation of 14x. As such, we
have re-pegged Padinis valuation to its average historical PE
of 12x (or 10x ex-cash). Downgrade our recommendation for
the stock to HOLD with a lower TP of RM1.77. Dividend yield
of 7% should provide support to the stock price.
At A Glance
Issued Capital (m shrs)
Mkt. Cap (RMm/US$m)
Major Shareholders
Yong Pang Chaun Holdings Sdn Bhd (%)
Skim Amanah Saham Bumiputera (%)
iCapital.biz (%)
Free Float (%)
Avg. Daily Vol.(000)

658
1,164 / 348
43.7
5.0
3.5
50.1
902

Company Focus
Padini Holdings

INVESTMENT THESIS
Profile
Padini is a 43-year old Malaysia-based fashion retailer
offering clothing, accessories and shoes for women, men and
children underthe brands of Padini, Vincci, Seed, Miki, Padini
Authentic, P&Co, PDI and so on. As of FY14, the group
operates 100 outlets inMalaysia and is the largest fashion
retailer in terms of number of stores.

Rationale
Continued cost pressure to dampen margin
In view of the increasingly competitive operating
environment and weaker consumer sentiment, we believe
that the group will need to continue its sales campaigns
to maintain its dominant market position. As such, margin
could continue to come under pressure
Supported by yield
Dividend yield is attractive at 7-8% for FY15 and FY16,
which will provides strong support to share price.

Valuation
With the lower earnings forecast, earnings growth for FY15 is
projected to be only 7% (vs previous forecast of 27%). Given
the unexciting single digit earnings growth, we believe that
the group no longer deserves a premium PE valuation of 14x.
As such, we have re-pegged Padinis valuation to its average
historical PE of 12x (or 10x ex-cash). Downgrade our
recommendation for the stock to HOLD with a lower TP of
RM1.77.

Source: AllianceDBS

Page 2

Risks
Competitive sector
Padini continues to face strong competition from a large
pool of retail brands in Malaysia. Lower consumer
spending could also affect future profitability.

Company Focus
Padini Holdings

Sensitivity Analysis

Key Assumptions
FY Jun
Total retail floor space (k
sqBreakdown
ft)
of revenue
growth
(%) (%)
SSS growth
Revenue growth from
exports,
Revenueconsignment
growth from& new
floor spaces (%)
Segmental Breakdown
FY Jun
Revenues (RM m)
Vincci
Padini (BF)
Seed
Yee Fong Hung
Others
Total
(RM m)
Vincci
Padini (BF)
Seed
Yee Fong Hung
Others
Total
Margins (%)
Vincci
Padini (BF)
Seed
Yee Fong Hung
Others
Total
Income Statement (RM m)
FY Jun
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)

Source: Company, AllianceDBS

Page 3

2011

2012A
2012A

2013A
2013A

2014A
2014A

2015F
2015F

2016F
2016F

699.1
27.7
13.2
3.7
10.9

708.3
8.8
(0.2)
(0.5)
9.4

848.5
9.7
4.8
(2.2)
7.1

987.5
13.6
1.9
0.3
11.3

1,031.5
9.9
1.4
0.3
8.2

2012A
2012A

2013A
2013A

2014A
2014A

2015F
2015F

2016F
2016F

229
227
88
149
25
726

224
246
87
195
28
790

206
273
91
253
29
866

216
318
96
307
33
984

223
351
99
358
37
1,081

41
47
8
26
4
130

30
41
3
33
3
118

18
43
8
44
3
126

22
51
7
40
4
133

25
56
7
52
4
154

17.8
20.6
8.6
17.5
15.1
17.9

13.2
16.6
3.6
17.0
10.8
14.9

8.6
15.8
9.1
17.4
10.5
14.5

10.0
16.0
7.0
13.2
11.0
13.5

11.0
16.0
7.0
14.5
11.0
14.2

2012A
2012A

2013A
2013A

2014A
2014A

2015F
2015F

2016F
2016F

19.0%

726
(375)
351
(222)
130
0
0
0
0
130
(34)
0
0
95
95
151

790
(421)
369
(252)
117
0
0
1
0
118
(32)
0
0
85
86
139

866
(466)
400
(276)
124
0
0
2
0
126
(35)
0
0
91
91
147

984
(538)
446
(313)
133
0
0
0
0
133
(36)
0
0
97
97
160

1,081
(593)
488
(335)
154
0
0
0
0
154
(42)
0
0
113
113
180

17.0%

27.7
19.6
25.1
25.9

8.8
(7.5)
(9.7)
(10.4)

9.7
5.3
5.8
6.5

13.6
9.3
7.7
6.7

9.9
12.0
15.0
16.0

48.4
17.9
13.1
30.6
20.5
26.6
41.4
658.2

46.7
14.8
10.8
24.0
17.1
21.0
61.6
NM

46.2
14.3
10.5
23.5
16.0
20.0
83.2
NM

45.3
13.6
9.9
24.5
17.0
21.9
83.0
702.6

45.1
14.2
10.4
27.2
19.0
24.9
83.0
NM

Utilities +/- 1%
Day rate +/- 1%

Net Profit +/- X%

Net Profit +/- X%

Margin squeeze due to

ongoing sales
campaigns

Margins Trend
18.0%
16.0%
15.0%
14.0%
13.0%
12.0%
11.0%
10.0%
9.0%
2012A

2013A

Operating Margin %

2014A

2015F

2016F

Net Income Margin %

Company Focus
Padini Holdings

Quarterly / Interim Income Statement (RM m)

1Q2014
2Q2014
FY Jun
1Q2014
2Q2014

Revenue Trend
3Q2014
3Q2014

4Q2014
4Q2014

1Q2015
1Q2015

250

25%
20%

200

15.7
30.4
37.3
40.9

47.1
17.7
12.8

46.8
16.5
12.1

46.2
12.6
9.6

44.3
9.9
7.0

45.3
11.8
8.5

Balance Sheet (RM m)

FY Jun

2012A
2012A

2013A
2013A

2014A
2014A

2015F
2015F

2016F
2016F

Net Fixed Assets

Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets

93
0
12
140
192
48
0
485

88
0
12
219
144
50
0
512

109
0
11
171
222
55
1
569

117
0
10
164
221
62
1
575

103
0
9
182
244
68
1
607

ST Debt
Creditor
Other Current Liab
LT Debt
Other LT Liabilities
Shareholders Equity
Minority Interests
Total Cap. & Liab.

31
79
10
20
6
339
0
485

19
89
9
17
6
372
0
512

37
110
11
15
7
388
0
569

15
122
11
15
7
404
0
575

15
135
11
15
7
423
0
607

151
89
21.9
86.8
187.3
1.6
3.2
1.6
CASH
CASH
52.9
8.4

96
183
22.5
76.8
153.8
1.6
3.5
2.3
CASH
CASH
44.8
8.7

157
119
22.1
81.9
150.6
1.6
2.8
1.4
CASH
CASH
82.1
7.4

150
134
21.7
83.0
158.3
1.7
3.0
1.5
CASH
CASH
115.8
8.0

167
152
22.0
82.8
149.6
1.8
3.1
1.5
CASH
CASH
36.6
7.9

Non-Cash Wkg. Capital

Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
Capex to Debt (%)
Z-Score (X)

Source: Company, AllianceDBS

Page 4

-5%
-10%

50

-15%
0

-20%

Revenue

1Q2015

(10.4)
(23.9)
(29.3)
(35.3)

0%

4Q2014

(6.5)
(22.9)
(28.7)
(25.7)

5%

100

3Q2014

7.8
0.2
0.6
2.4

10%

2Q2014

22.7
63.6
77.6
77.1

Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (%)
Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)

15%

150

1Q2014

227
(124)
103
(76)
27
0
0
0
0
27
(7)
0
19
19
34

4Q2013

196
(109)
87
(67)
19
0
0
0
0
19
(6)
0
14
14
26

3Q2013

219
(118)
101
(74)
28
0
0
1
0
28
(7)
0
21
21
34

2Q2013

234
(124)
110
(71)
39
0
0
1
0
39
(11)
0
28
28
44

1Q2013

217
(115)
102
(64)
38
0
0
1
0
39
(11)
0
28
28
44

4Q2012

Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.
EBITDA

Revenue Growth % (QoQ)

1Q15 gross margins dropped

by 2ppts y-o-y to 45% due to
more aggressive sales
campaigns

Asset Breakdown (2014)

Company Focus
Padini Holdings

Cash Flow Statement (RM m)

FY Jun
Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (sen)
Free CFPS (sen)

Capital Expenditure
2012A
2012A

2013A
2013A

2014A
2014A

2015F
2015F

2016F
2016F

130
21
(29)
0
(53)
6
74
(27)
0
0
0
0
(27)
(53)
4
0
0
(49)
0
(2)
19.4
7.2

118
22
(34)
0
47
7
160
(16)
0
0
0
(7)
(23)
(53)
(15)
0
0
(67)
0
69
17.2
21.8

126
23
(36)
0
(66)
(4)
43
(43)
0
0
0
(57)
(100)
(76)
16
0
0
(59)
0
(117)
16.6
0.0

133
27
(36)
0
6
(2)
128
(35)
0
0
0
2
(33)
(80)
(22)
0
0
(103)
0
(7)
18.5
14.2

154
26
(42)
0
(16)
(2)
120
(11)
0
0
0
2
(9)
(93)
0
0
0
(93)
0
18
20.8
16.6

50
45
40
35
30
25
20
15
10
5
0
2012A

2013A

Source: Company, AllianceDBS

Target Price & Ratings History

RM
S.No .

2.11

2.01

1:
2:

6
5

1.91
1.81

1.71 1
1.61
1.51
Nov-13

Mar-14

Jul-14

Nov-14

Not e : Share price and Target price are adjusted for corporate actions.

Source: AllianceDBS

Page 5

2014A

2015F

Capital Expenditure (-)

Cl os i ng Ta rg e t
Pri c e
Pri c e
26 Nov 13
1.78
1.75
27 Feb 14
1.78
1.85
Da te

R a ti ng
Hold
Hold

3:

03 Apr 14

2.00

2.40

Buy

4:
5:

21 May 14
29 May 14

1.98
2.01

2.55
2.55

Buy
Buy

6:

25 Jun 14

1.97

2.55

Buy

7:

28 Aug 14

1.87

2.45

Buy

2016F

Company Focus
Padini Holdings

DISCLOSURE
Stock rating definitions
STRONG BUY
BUY
HOLD
FULLY VALUED
SELL

> 20% total return over the next 3 months, with identifiable share price catalysts within this time frame
> 15% total return over the next 12 months for small caps, >10% for large caps
-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps
negative total return > -10% over the next 12 months
negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame

Commonly used abbreviations

Adex = advertising expenditure
bn = billion
BV = book value
CF = cash flow
CAGR = compounded annual growth rate
Capex = capital expenditure
CY = calendar year
Div yld = dividend yield
DCF = discounted cash flow
DDM = dividend discount model
DPS = dividend per share
EBIT = earnings before interest & tax
EBITDA = EBIT before depreciation and amortisation

Page 6

EPS = earnings per share

EV = enterprise value
FCF = free cash flow
FV = fair value
FY = financial year
m = million
M-o-m = month-on-month
NAV = net assets value
NM = not meaningful
NTA = net tangible assets
NR = not rated
p.a. = per annum
PAT = profit after tax

PBT = profit before tax

P/B = price / book ratio
P/E = price / earnings ratio
PEG = P/E ratio to growth ratio
q-o-q = quarter-on-quarter
RM = Ringgit
ROA = return on assets
ROE = return on equity
TP = target price
trn = trillion
WACC = weighted average cost of capital
y-o-y = year-on-year
YTD = year-to-date

Company Focus
Padini Holdings

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person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research distributed in
the UK is intended only for institutional clients.
In reviewing this report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential
conflicts of interest. Additional information is, subject to the overriding issue of confidentiality, available upon request to enable an investor to
make their own independent evaluation of the information contained herein.

Wong Ming Tek, Executive Director

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