By Stephanie Jacob
The consumer sector is currently facing weak consumer sentiment brought on by the implementation of the GST and concerns over economic and financial uncertainty. Like all consumer stocks, Padini Holdings Bhd has felt the pinch. But given its attractive dividend yield, strong expansion plans, and year-low share price, is now a good time for investors to consider this counter?
Business model: Padini Holdings Bhd can trace its roots back to 1971 when it was called Hwayo Garments Manufacturers Co. It was a sole proprietorship, manufacturing ladies garments which it would then sell wholesale to department stores.
In 1975, the company entered into the retail industry with its namesake brand – Padini. Over the years it added brand names to its retail business, including the popular Vincci, SEED, and Miki labels.
A holding company for the group’s retail, wholesale, and manufacturing businesses was established under the name Home Stores Sdn Bhd in 1991. This was then changed to Padini Holdings Sdn Bhd in 1992. That same year the group opened its first single brand retail store, named SEED, in Sungei Wang Plaza.
In 1995, Padini Holdings Sdn Bhd became Padini Holdings Bhd and was publicly listed on the Second Board of Kuala Lumpur Stock Exchange – now Bursa Malaysia. The group ventured into the food and beverage line in 2000, when it opened its first SEED Cafe. That year it also ventured abroad when it opened its first Vincci store in Brunei.
Today, Padini Holdings has nine labels of its own which retail in its 330 freestanding stores, franchised outlets, and consignment counters in Malaysia and around Asia, the Middle East, and Africa.
In its financial year ended June 30, 2015 (FY15), Padini Holdings reported an 11% decrease in profit after tax, despite top line growth of 13% on the back of 10 new stores openings. The decrease in net profit was attributed to the group’s aggressive promotional and discounting activities, said Kenanga Research. The group’s margins were also affected by its decision to absorb the goods and services tax (GST).
Shareholders and management assessment: Padini Holdings’ managing director is Yong Pang Chaun, who is also a member of the group’s board of directors. According to its annual report, Yong has been and still is the driving force of the group, and is still responsible for crafting the group’s strategies and plans. Also on the board are Yong’s wife Chong Chin Lin, his sister Yong Lai Wah, and his son Andrew Yong.
Yong, his wife, and his sister are major shareholders in the company via their interest in Yong Pang Chaun Holdings Sdn Bhd, which owns a 43.74% interest in the group as at June 30, 2014. Another notable shareholder is icapital.biz Bhd, which holds 2.88% and is the third-largest shareholder.
Share performance: According to Bloomberg, Padini has been trading in a 52-week range of RM1.28 to RM1.96. The group has a market capitalisation of RM901.3 million.
It has a one-year return rate of -20.82%, and therefore has underperformed the FBM KLCI which has a return rate of -7.46%. According to Reuters, the group has a beta coefficient of 1.51, and is therefore trading above the overall market volatility. A value of 1.0 reflects the average volatility of the stock market.
What analysts think: According to Reuters, out of the eight research houses which cover Padini, three have an “outperform” call and two houses have a “buy” call. While the remaining three have a “hold” call on the counter.
Out of the research houses surveyed by KINIBIZ (please see table) for this article, one has an “outperform” call, two have “buy” calls, and two have “hold” calls.
Earnings forecast:
StockStalk: The consumer sector is expected to remain a tough environment for the rest of the year. Sentiment is weak on the back of the implementation of the GST and amid financial uncertainty and this is dampening discretionary spending.
This will undoubtedly have an impact on Padini Holdings over the coming financial year. Furthermore, with the group scheduled to open more stores this year, costs will continue to remain escalated over the near term.
Nonetheless, the first and second quarters tend to be Padini Holdings stronger ones given that there are festive periods in them and this may help mitigate the poor consumer sentiment somewhat.
Kenanga Research also opined that as macroeconomic headwinds improved the group will be well placed to capitalise.
“Padini Holdings would be well positioned to ride one the up-wave, having already established its store presence,” said the research house. And added that most of the negatives mentioned have likely already been priced into the group’s current share price.
Factors of interest to investors include that Padini Holdings’ share price has fallen about 27% year-on-year, from RM1.89 to RM1.37 (at the close on Sept 2, 2015). Furthermore, the group offers dividend yield in the range of 7% to 8%, which is on the higher end of what it offered by most other consumer stocks.
However, investors interested in Padini will need to be patient as consumer spending recovers, which may happen slower than expected should financial headwinds not ease as quickly as hoped.
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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