PADINI HOLDINGS BERHAD VALUE EVALUATION

Established as a garment industry player, Padini is no stranger to the Malaysian locals especially the youngsters from teens to their 30’s. We all might have known each company builds up their branding by targeting certain consumer groups. As for Padini, it is mainly going for the 20’s to 30’s where their spending power is not too dynamic but with a certain degree of fashion adoption. Going through the chairman statement, I notice that the company takes a different approach by putting themselves into the shoes of their customer group where they are concern about how the youngsters optimize their spending. This leads Padini to manufacture their products up to the money value and at the same time, putting their design in line with their international competitors. Padini group also owns Vinci, famous shoes outlet dedicated specially for ladies. According to my observation, their pricing and products never fail to attract consumers regardless of geographical and culture factors. Again, there is many kinds of fashion outlet, however, the reputation and branding built by Padini along with its strategic pricing and designing model, it stands out from the aggressive competition. Provided Padini is able to continue to fulfil customer’s expectation, I can see its positive position in ten years’ time. With fashion conglomerate like Mark&Spencer striving in the market for decades, Padini itself is certainly filled up with a lot of potential prospects. Capital expenditure is being allocated at a very minimal amount where purchase of new plants and equipment is aimed at boosting manufacturing capacity and driving cost efficiency up.

 Venturing into an industry that is not only by local but also international competitors, it is another dog eat dog situation. Compared to 2008, the company selling and distribution cost increased by almost 100% from RM100,000 to RM 200,000 in just 7 years. Advertisement cost has never been so high when especially, invention of smartphone has changed the rule of marketing. With so much people using smartphone now, conventional method hardly reaches its audiences effectively and thus driving the company to search for more marketing channel. As mentioned by the chairman himself, the company finds it hard to fulfil the consumers’ every changing preference. Failing in prediction might drive their customer flows openly to their competitors.

According to the operating cash flows, there is a wild movement between these ten years. However, the cash flow shows a result of upward trend. Annual compound rate for the cash flow is calculated at 25%, however, taking into the recent spike, it’s adjusted to 20%, which is still superb. As for both ratios, they are no issue as the company is efficient in utilizing their assets and equities. As for cash management, the group does the financing by termed loans, short borrowings and issuance of shares. With a combination these sources, it is able to decrease its gearing which is currently at only 5%. There is a strong RM135 million cash reserves which shows the group readiness for future expansions and plans. Intrinsic value (Calculated with 8% rate and Margin of Safety for 40%) is valued at RM2.75 which are above the market price of RM2.0. Despite these fair results, I noticed that there is a change in boardroom and audit committee with the reason being personal commitment. However, resignations from these independent personnel which are submitted on 30^th of April 2014 might raise a few eyebrows. It’s better to stay cautious before jumping in.

Stock: PADINI Code: 7052