Padini Holdings Bhd - First Look

Padini Holdings Berhad is an investment holding company. The Company's subsidiaries are dealers of ladies' shoes and accessories, dealers of garments and ancillary products, dealers of children's garments, maternity wear and accessories, provision of management services and dealers of garments, ladies' shoes and ancillary products. The Company principally operates in Malaysia. The Company's subsidiaries include Vincci Ladies' Specialties Centre Sdn. Bhd., Padini Corporation Sdn. Bhd., Seed Corporation Sdn. Bhd., Yee Fong Hung (Malaysia) Sendirian Berhad, Mikihouse Children's Wear Sdn. Bhd., Padini Dot Com Sdn. Bhd., Padini International Limited, Vincci Holdings Sdn. Bhd. and The New World Garment Manufacturers Sdn. Bhd.

Stock Rating: OUTPERFORM

Price: RM1.32

Target price: RM1.50  

based on 2016 PE of 12.5

Long Term Outperform (5-year period)

Short Term Bearish (3-month period)

Risk Level: Medium-High

**Outperform: Expect to do better than market return; has upside/cheap vs target price. Usually a buy call.
**Market perform: Expect to be on neutral, can be + - 3% to 5% either way; Usually a hold call.
**Underperform:  Expect to do worse than market return; has downside/expensive vs target price. If fundamentals change a sell call.

Due to time constraints I will only perform high level analysis (takes me 45 mins). However I will use (based on my experience) well known and thoroughly research from others, call it leverage. I will quote these sources when it arises.
Core Fundamentals

Profitability: Growing EPS and DPS but met expected headwind (GST) in 2014.
Since 2012 facing intense competition by H&M and Uniqlo. Compounded by implementation of GST in 2014 and higher capital cost from opening 6 Padini Concept Store & 6 Brands Outlet (to open in 2016).
Leverage: Coverage of debt is healthy. DE ratio of not more than 0.5.
*PADINI (vs Bonia, AsiaBrands, Voir, TGL, Kamdar) is the least leveraged company. *Retained Cash Flow to Debt – 386.2%.
Returns on Equity(ROE): Not less than 10% averaged over time.
*PADINI (vs Bonia, AsiaBrands, Voir, TGL, Kamdar) is the champion in generating profits with the highest efficiency.

*In depth Fundamental Analysis I highly recommend LC Chong's post :
PADINI – Fundamental Analysis (21 Aug 2015)
Also worth mentioning is Kenanga Research : 
RESULT NOTES - PADINI HOLDINGS BERHAD - 19 AUGUST 2015

Opportunity Seeking

Effects of the GST (1/4/15) - weaken consumer sentiments*. (adjustment period of GST is usually one year based on other countries) presents an excellent opportunity to accumulate. The current share price has breached below FY 2016 PE12.5 target price of RM 1.50. 

In valuation terms, it look quite attractive. Also the dividend yield of 7.5% at current price is a steal (which what attracted me in the first place) and would help offset further small dips in the price over the short term. Recent rout in KLSE has not impacted PADINI yet - has the price really bottomed out? Budget 2016 will be tabled in October may hold unexpected surprise. Will monitor PADINI for now and buy slowly later using cost averaging method.

*weak consumer sentiment - no signs of improvement yet

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.