padini holdings in-vincci-ble! 20120510 osk (1)

7/27/2019 Padini Holdings in-Vincci-Ble! 20120510 OSK (1)

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PP10551/09/2012 (030567)

04 May 2012

OSK Research | See important disclosures at the end of this report 1

MALAYSIA EQUITY

Company Update

Padini Holdings" In-Vincci-b le"!

During our recent tour of Vinccis designer team office and Padini warehouse, we

got a sneak peek of Padinis gorgeous Oct/Nov collections. We like the

companys solid fundamentals and the fact that its expansion plans are well on

track. The impact ofMalaysias 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 itsVincci 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

companys 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 Padinis earnings because: (i) the companys 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


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Whats behind the Runway?

InVinccible. Being one of Malaysias prominent shoe brands, Vincci is constantly pushing the boundaries

and introducing hot-off-the-runway shoe designs at affordable prices for women. Recently, we went one step

further to see first-hand what happens behind the scenes by visiting Vinccis designer office, where it has a

showroom replicating an actual Vincci shoe store at the office displaying the export merchandise for the new

season. We were fortunate to be able to get an early glimpse of the shoes and bags for the October and

November season.

Party, casual and formal. The companys team of 7 designers comes out with a total of 50 new shoe

designs every month. Occasionally, some shoe designs are also sourced from its China factory in order to

provide variety. The 3 main categories of Vinccis shoes Party, Casual and Formal cater to a broad

clientele. Each month, the best-selling items are highlighted and the designers responsible for such items will

be recognized. Normally, casual shoes such as flats draw a higher selling volume compared to high heels.

Manufacturing of the products is outsourced to 21 footwear manufacturers in Malaysia, while besides

importing certain special materials from China, most of the raw materials is sourced locally.

Figure 1: Short briefing Figure 2: Different types of heels

Source : OSK Source : OSKFigure 3: Shoes material Figure 4: Vincci showroom

Source : OSK Source : OSK


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Touring the warehouse

3 warehouses. These 3 warehouses are situated along the same road. We visited the apparel warehouse

ust a block away from Padinis headquarters. The other 2 warehouses are for Vincci shoes and non-trading

items such as hangers. Each day, the warehouse will receive 200k-300k pieces of garments from China,

Vietnam, Hong Kong and other countries. Packing and pallet labeling is carried out according to brand,quantity, product type and outlet. Typically, it takes 3-5 days to distribute the goods to the outlets.

Apparel warehouse. In thedouble-storey apparel warehouse, each level can store up to 4k pallets, giving a

total capacity of 8k pallets. The first level is used to keep the new arrivals waiting to be transferred to the

outlets, while the 2nd

is for off-season and returned merchandise. Similar to manufacturing, the logistics work

is outsourced to freight forwarders and the companys internal logistics department is only responsible for

coordinating the logistics arrangements.

Figure 5: Apparel warehouse Figure 6: Carton of garments

Source : OSK Source : OSKFigure 7: Pallet label Figure 8: Delivery area

Source : OSK Source : OSK


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FYE June (RM m) FY09 FY10 FY11 FY12f FY13f

Turnover 475.5 518.8 568.5 695.1 773.1

EBITDA 88.8 109.2 128.5 152.9 174.0

PBT 67.6 86.3 105.1 123.9 140.8

Net Profit 49.5 61.0 75.7 90.5 102.8

EPS 7.3 9.0 11.2 13.4 15.2

DPS 2.7 3.0 4.0 6.4 7.6

MarginEBITDA (%) 18.7 21.0 22.6 22.0 22.5

PBT (%) 14.2 16.6 18.5 17.8 18.2

Net Profit (%) 10.4 11.8 13.3 13.0 13.3

ROE (%) 24.3 26.0 26.8 27.4 26.3

ROA (%) 17.1 17.1 17.0 18.2 18.3

Balance SheetFixed Assets 81.2 92.3 94.6 108.3 105.2

Current Assets 208.2 264.3 349.8 388.8 455.4

Total Assets 289.4 356.6 444.4 497.1 560.6

Current Liabilities 81.8 111.4 138.0 139.3 151.0

Net Current Assets 126.4 153.0 211.8 249.5 304.4

LT Liabilities 3.5 10.9 23.7 16.6 11.6Shareholders Funds 204.0 234.3 282.7 329.7 391.4

Net Gearing (%) Net cash Net cash Net cash Net cash Net cash

EARNINGS FORECAST


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OSK Research

OSK Research Guide to Investment RatingsBuy: Share price may exceed 10% over the next 12 monthsTrading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertainNeutral: Share price may fall within the range of +/- 10% over the next 12 monthsTake Profit: Target price has been attained. Look to accumulate at lower levelsSell: Share price may fall by more than 10% over the next 12 monthsNot Rated (NR): Stock is not within regular research coverage

All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will besubject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financialinstruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-makingbased on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwritingcommitments in the securities mentioned.Distribution in SingaporeThis research report produced by OSK Research Sdn Bhd is distributed in Singapore only to "Institutional Investors", "Expert Investors" or "AccreditedInvestors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "AccreditedInvestor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from,or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd ("DMG"). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research.

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padini holdings in-vincci-ble! 20120510 osk (1)

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