(Dec 21, RM4.90)
Non-rated, fair value of RM5.33: We recently hosted a corporate presentation by Padini Holdings (Padini), a well-established retailer of fashion apparel and footwear, and came away with a positive medium-term outlook on the company.
Strong brand recognition and a large nationwide store network place Padini in a favourable position to capitalise on any strengthening of consumer sentiment and spending.
Padini Corp and Vincci Ladies are the most significant subsidiaries in Padini Group, together constituting 70% of FY10 group revenue and 84% of pre-tax profit.
Padini-branded clothing and footwear with the Vincci label have consistently resonated with Malaysian consumers, thanks to the group’s effective merchandising strategy.
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There are currently 11 “Brands Outlet” stores that account for 27% of the group’s total retail floor space.
Given Padini’s minimal capex requirements in the two-year forward forecast period, we believe the company could pay out higher dividends than the 15 sen dividend per
share in FY10 (32% dividend payout ratio).
Utilising a target price-earnings ratio of 10 times applied to CY11 earnings per share of 53.3 sen, we arrive at a fair value of RM5.33. Our target PER is based on a two times premium to Bonia Corp, Padini’s closest comparable.
We believe Padini deserves to trade at higher valuations because it has a larger store network and higher margin product mix (with larger proportion of fashion apparel).
Target PER is lower than Padini’s 12-year historical average PER of 11.7 times (FY99 to FY10), however, as we anticipate moderation in earnings growth moving forward. We have projected a three-year net profit compound annual growth rate (FY10/12) of 6.4%.
Our fair value indicates a potential 9% upside to the current share price. — ECM Libra Investment Research, Dec 21
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