12 things to know about Padini Holdings before you invest (updated 2019)

Padini Holdings Berhad is a multi-brand fashion retail corporation listed in Malaysia. As of 21 November 2019, its market capitalisation is at RM2.26 billion. In this article, I’ll cover the company’s shift in retailing strategy, latest annual results, and valuation ratios.

Here are 12 things to know about Padini before you invest:

1. Over the last five years, Padini has shrank its retail network from 366 outlets (281 local and 85 overseas) in 2014 to 191 outlets (141 local and 50 overseas) in 2019.

The reduction in the number of stores is due to the following:

• Consolidation of single-brand outlets into Padini Concept Stores. Previously, the company had operated retail outlets that were brand-specific, including Padini, PDI, Miki, Seed, P & Co, Padini Authentic, and Vincci. Over the last few years, Padini has been closing these single-branded stores and shifted its focus toward Padini Concept Stores which houses all the company’s brands under one roof. The number of Padini Concept Stores has grown from 20 in 2010 to 48 in 2019.
• Focus on Brands Outlet stores for growth. In 2007, Padini established Brands Outlet to market a wide range of value-for-money fashion merchandise in Malaysia. Just like the Padini Concept Stores, Brand Outlets also consolidates the company’s multiple brands under one roof. Padini now operates a total of 55 Brand Outlet stores and has been a key driver of growth over the last five years.
• The closure of overseas franchise stores including 10 Seed dealer stores in Thailand in 2011; 12 Seed and Padini Authentic franchise stores in Saudi Arabia in 2012; 21 Vincci/VNC franchise stores in the Middle East in 2015; nine Vincci/VNC dealer stores in Thailand in 2019; and six Vincci/NVC franchise stores in Pakistan in 2019.

2. Padini has grown the gross floor area (GFA) of its retail space from 980,000 square feet in 2015 to 1.48 million square feet in 2019. This is despite a drop in the overall number of retail outlets during the period.

The reason is that Padini Concept Stores and Brands Outlets are larger in size compared to the individual-brand outlets which were closed. Padini Concept Stores and Brands Outlet now account for 51.6% and 44.8% of total GFA respectively.

3. Revenue has grown at a CAGR of 14.7% from RM518.8 million in FY2010 to RM1.78 billion in FY2019, and earnings have grown at a CAGR of 11.4% from RM61.0 million to RM160.2 million over the same period. Net profit margins have remained stable at around 10% and the average return on equity over the last 10 years is 25.37%.

4. From FY2010-2019, Padini has generated RM1.28 billion in cash flows from operations, and spent RM331.6 million in net capex and paid RM600.0 million in dividends. As of 30 June 2019, the company has cash reserves of RM472.0 million which currently yields a weighted average effective interest rate of 2.84% per annum. Padini only has RM24 million in debt. Padini’s gearing ratio is 3.2% and its current ratio is 3.92.

5. Padini has gradually reduced its debtor days from 23 days in FY2010 to 12 days in FY2019. This means Padini now takes 12 days on average to collect payment from customers after it has billed them.

6. Inventory days has also reduced from a high of 225 days in FY2011 to 93 days in FY2019. This means Padini takes 93 days on average to move its inventory and has become much more efficient at retailing its products over the last 10 years.

7. Creditor days decreased to 59 days in FY2019, from a high of 113 days in FY2016. This means Padini is taking fewer days to pay its suppliers instead of stretching out its payments to them.

8. Overall, Padini has significantly improved its cash conversion cycle from a high of 134 days in FY2012 to 48 days in FY2019. The company has become more efficient in moving its inventory and collecting payments, which also explains its ability to generate positive cash flows over the last ten years.

9. Padini has revealed that it has not finalised any plans to either open or close any stores in Malaysia and Thailand, except for the opening of one new outlet in Cambodia. Padini intends to focus on e-commerce to boost online sales to complement its business growth in the future.

10. P/E ratio: Padini posted earnings per share of 24.34 sen in FY2019. Based on its share price of RM3.44 (as of 21 November 2019), Padini’s current P/E ratio is 14.13, above its 10-year average of 13.64.

11. P/B ratio: As of 30 June 2019, Padini has net assets per share of RM1.13. Therefore, its P/B ratio is 3.04, below its 10-year average of 3.48.

12. Dividend yield: Padini has paid 11.5 sen in dividend per share (DPS) in each of the last four years.

Based on its last closing share price, Padini’s dividend yield is 3.34%, below its 10-year average of 4.26%.

The fifth perspective

Padini has continued to deliver consistent growth in revenue but profits fell 10% in FY2019. Despite the drop, it is still the highest recorded profit over the last 10 years.

Padini’s share price had fallen sharply from RM5.16 to RM3.47 in early December 2018 when it reported lacklustre results due to a squeeze in margins. The stock has trended sideways since then and is now trading closer to its historical valuation averages.