Written by Financial Daily
Thursday, 08 March 2012 11:31
Padini Holdings Bhd
(March 7, RM1.48)
Initiating coverage with a target price of RM1.80: We initiate coverage on Padini with a “buy” recommendation and a fair value of RM1.80 based on a 10% discount to its discounted cash flow value of RM2. FY12 is turning out to be an aggressive year for Padini, due to the substantial number of store openings during the year. Thus far, four stores have been launched and six more — three each of Brands Outlet and Concept Stores — are targeted to open in 2HFY12.
This reflects Padini’s deepening market penetration and ascendency as a preferred mini-anchor for retail malls. Its strong brand equity is the pull factor in boosting retail traffic.
We forecast earnings to expand by 12% from RM75 million in FY11 to an estimated RM83 million for FY12. Earnings are expected to accelerate by 19% in FY13, boosted by the full-year impact of 10 new stores. We have assumed five new stores each for FY13 and FY14.
Sales for FY13 will get a further boost from the Malaysia Mega Sale taking place from June 15 to Sept 2 this year. Apart from the opening of new stores, we have not incorporated the collaboration with FJ Benjamin for the Vincci licence in our forecast. Discussions are preliminary at this stage. Short to medium term impact will not be significant until the size of the distribution network in Indonesia grows considerably larger.
The group has no official dividend policy but it has consistently paid out dividends of at least 30% of earnings from FY07 to FY11. We forecast an unchanged dividend payout of 30%, translating to a dividend per share of four sen and 4.5 sen for FY12 and FY13, respectively.
Padini’s market capitalisation is approaching RM1 billion. This will improve visibility and investability among the institutional funds. At present, local institutions hold at least 20% of Padini but we expect the level of institutionalisation to expand. We like Padini for its strong balance sheet, and its Brands Outlet and Concept Store are mini-anchor tenants, given their potential to increase footfall for retail malls. We have also noted Padini’s potential growth in the domestic market especially in the outskirts.
Despite its strong share price performance, valuation is undemanding because earnings expansion is significant, at a compound annual growth rate of 12% over FY12 to FY14, and free cash flow of more than 10%. At current levels, the stock is trading at an attractive price-earnings ratio of 9 to 11 times. — AmResearch, March 7
This article appeared in The Edge Financial Daily, March 8, 2012.
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