AnalysisBursa

7 things I learned from the 2020 Padini AGM

Padini Holdings Berhad is a homegrown fashion company listed on Bursa Malaysia. The company is largely present in Malaysia and owns a number of well-known household brands such as Padini Concept Stores, Brands Outlet, and Vincci. It aims to deliver affordable fashion to its customers.

The company was not spared from the economic fallout due to the COVID-19 pandemic; it sank into the red in the fourth quarter of FY2020 (ending 30 June). As footfall to shopping malls dropped and Malaysians stayed home, Padini ramped up its digital initiatives like organising Facebook Live events to reach out to customers.

Here are seven things I learned from the 2020 Padini AGM.

1. Revenue decreased 24.0% year-on-year to RM1.4 billion in 2020 while net profit excluding extraordinary items plummeted by 67.4% year-on-year to RM46.7 million over the same period. This was due to the implementation of the Movement Control Order in Malaysia to mitigate the spread of COVID-19.

All of its domestic outlets were closed between 18 March and 4 May which accounted for 95.6% of Padini’s revenue in 2020. Likewise, revenue and net profit per square feet from local outlets dropped year-on-year in 2020.

Source: 2020 Padini AGM presentation slides

2. A shareholder shared his view that that Padini has a good presence in larger cities and smaller towns in Malaysia, and that the domestic market is already saturated. The management replied there is still room for business growth in Malaysia despite the intense competition. The management believes in getting the right products at the right pricing and distributing them to the right customers. Padini has also launched new products like active and lifestyle sports clothing in 2020. This line will be further expanded if they are well received by consumers.

In response to a shareholder’s question regarding its competitive advantages, the management believes brand differentiation and market focus are two key factors that set Padini apart from other brands such as Uniqlo and Zara. It is also worth noting that a number of direct-to-consumer fashion brands are on the rise in Malaysia. Competition in the fashion industry is expected to be tough down the road.

3. Padini opened just one new store in 2020 in Cambodia. Overseas markets in regions other than Cambodia and Thailand are managed by licensees. A shareholder voiced that Padini’s foreign business expansion is slow. The management responded that Padini is still at the early stage of business growth in overseas markets. But in fact, Padini has been in the overseas business since the early 2000s via appointed dealers and franchisees. However, the revenue contribution from foreign markets remains small and the business has yet to take off.

The number of dealer and franchise stores nearly halved from 60 in 2018 to 33 in 2020, and the franchise in Indonesia was terminated in September 2020. Executive director Benjamin Yong mentioned the company will explore the option to open outlets (probably owned-managed stores in my opinion) there once the pandemic is over.

4. Padini has increased its presence in the e-commerce space recently. Its official e-commerce website has been operating since 2015 and some of its recent digital endeavours include:

  • Broadcasting Facebook Live in Malaysia in May 2020
  • Launching on Shopee in Thailand in August 2020
  • Expanding its official e-commerce website to include Singapore in October 2020
  • Launching on Shopee in Malaysia in November 2020

The management believes its brick-and-mortar stores and e-commerce will complement each other to provide customers with a richer shopping experience. Some shareholders consider Padini a slow mover in terms of its adoption of e-commerce. In 2020, the revenue contribution from digital platforms was less than 1%.

5. A shareholder highlighted that Padini’s gross margin had declined over the past decade, from 50.2% in 2010 to 39.7% in 2020. The management attributed the decline to the increasing revenue contribution from Brands Outlet to the company. Brands Outlet products generally have lower margins than products sold under other Padini brands. Brands Outlet was first opened in December 2006 and its revenue contribution to the company has grown from about 4.1% in 2007 to approximately 41.2% in 2020.

Padini sources most of its products from China and its earnings are affected by the yuan-ringgit exchange rate. If the yuan appreciates by 1% against the ringgit, Padini’s purchase costs will inflate by about RM5 million.

6. Minority Shareholder Watch Group pointed out that Padini’s inventory turnover had slowed year-on-year. Inventories amounting to RM6.2 million were written down due to the impact of COVID-19. The management explained that stock obsolescence is a common issue in the fashion trading industry. The overall retail industry experienced a downturn and Padini was similarly affected. On a brighter note, Padini did not experience any major business disruptions and will continue to optimise its purchases so that it is not burdened with old stock.

7. A shareholder noticed the drop in staff costs from RM210.1 million in 2019 to RM182.2 million in 2020 despite the fact that Padini neither closed any stores nor retrenched any employees. Executive director Sharon Sung explained that the reduction was due to a drop in the number of contract staff which led to savings in bonuses and commissions. Certain outlets had shorter operating hours which contributed to lower overtime expenses.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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