7 things I learned from the 2021 Padini AGM

Padini Holdings Berhad began its business in 1971 and was listed in Malaysia in 1998. As of June 2021, it owned 141 stores across Malaysia, Cambodia, and Thailand. It is also present in other countries such as United Arab Emirates and Myanmar through franchise businesses. Most of the self-managed stores are concentrated in Malaysia.

Recently, I visited one of its outlets in Klang Valley on a weekend. That particular outlet was packed with shoppers. It looks like there is light at the end of the tunnel for Padini as business gradually picks up and customers slowly return to the malls. Here are seven things I learned from the 2021 Padini AGM.

1. Revenue remained sluggish amid the COVID-19 pandemic and declined 24.0% year-on-year to RM1.0 billion in 2021. Net profit excluding other income plummeted 69.2% year-on-year to RM14.4 million over the same period.Retail businesses like Padini had to sometimes shut their operations to comply with the government’s various phases of movement control orders in the past two years. Limited operating hours, social distancing rules, and reduced footfall to its outlets further left a dent on the company’s business.

2. Gross margins inched down marginally from 40% in 2020 to 38% in 2021 which is still within the management’s guidance. Product pricing will still be maintained on the backdrop of supply chain disruptions and high cotton prices.

3. The number of self-managed stores dropped from 152 in 2020 to 141 in 2021. The 11 stores closed were all located in Malaysia. The closure was part of Padini’s cost rationalisation plan to keep its costs in check and maximise its returns on equity. The company also received about RM16.3 million worth of rental rebates from landlords in 2021 to weather through the situation.

The company may be hit by the one-off prosperity tax introduced by the Malaysian government for financial year 2022 depending on the trajectory of its recovery. Capital expenditure totalling about RM20 million will be spent on information technology and hardware infrastructure in 2022.

4. Padini started its online business in 2015. Due to the pandemic, Padini expanded its online presence aggressively across social media and e-commerce platforms such as Facebook, Shopee, and Lazada. As more and more consumers shop online, the company further launched its own mobile application in June 2021.

Executive director Andrew Yong Tze How shared that Padini focuses on the overall growth of the company and wants to provide an omnichannel shopping experience to customers whereby they can buy clothes online and do exchanges in stores. The click-and-mortar strategy will remain in place in the future. In 2021, digital sales still made up of less than 2% of its total revenue and mostly came from its website and mobile app.

5. Padini has been in overseas markets since 2000 yet foreign revenue contribution remained small at 4.2% in 2021. The company earned the rest of its  revenue from the domestic market. To my surprise, Padini’s overseas business held up quite well despite the pandemic as shown in the table below.

Executive director Benjamin Yong Tze Jet added that the management’s current focus is still the core domestic market until the pandemic is over. Its overseas venture will likely remain relatively insignificant in the near future. Inventory will be kept at healthy level.

Revenue per Square Foot 20202021
Malaysia RM866 RM714
Cambodia RM803 RM557
Thailand RM1,025 RM685
Source: 2021 Padini AGM presentation slides

6. The improvement of Padini’s quick ratio from 2.6 in 2020 to 3.9 in 2021 indicated that it had ample liquidity to finance its short-term debt and payment obligations without depending on its inventory. Inventory turnover days increased from 92 days in 2019 and 125 days in 2020 to 143 days in 2021 because of lower sales and business disruptions brought about by the intermittent lockdowns.

7. The company will continue to differentiate itself from other brands by providing affordable and value-for-money fashion to customers according to Yong. Its Padini Concept Stores and Brands Outlet also give consumers a unique shopping experience as multiple brands are consolidated into one store. Its branding strategy has also shifted over the years from old media such as billboards and magazines to social media such as Instagram. The shift allows the company to create more quality content at a faster and lower rate.

The fifth perspective

In general, Padini’s management is very cautious in dealing with its business especially when it comes to new store opening and foreign expansion, which is good. The management did not really detail the impact of high cotton prices and supply chain disruption on the company in the short term. However, in the long run, this company will still be fine since it has zero debt and cash amounting to RM517.8 million as of September 2021. As movement restrictions are progressively eased in Malaysia, the company is poised to recover from the pandemic.

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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