Investment Highlights

• We downgrade our recommendation from HOLD to UNDERWEIGHT on Padini Holdings with a slightly higher FV of RM4.81 (vs. RM4.52 previously) after rolling forward our valuation from FY19F to CY19F, based on a PE of 15x. We have tweaked our earnings forecast for FY19F and FY20F by +1.2% and +1.5% respectively. After the recent run-up in share price, we believe Padini has reached its full valuation.

• We came away from our meeting with management feeling neutral. The key takeaways are as follows:
  1. Increased focus on its regional operations. Padini now operates 7 stores in Thailand and 3 stores in Cambodia.
  2. Padini has opened a total of 18 stores in FY18 and plans to add 4 new stores in FY19F.
  3. Improvements in internal efficiencies are underway, with plans of maintaining its workforce at around 4,000 employees.
  4. The domestic market has reached saturation and SSSG is expected to be flattish moving forward.

• Padini is commencing operations of 7 Vincci outlets in Thailand in Nov 2018. The 7 outlets are existing stores that were previously managed by locals. Padini has taken over the management in Thailand as there is potential to grow the business in the country.

• The company is currently operating 3 stores in Cambodia. As management does not expect any growth catalyst in Cambodia in the immediate term, it will focus on improving its general affordability and brand awareness in the regional market.

• Padini has opened a total of 18 stores (6 Padini Concept stores, 9 Brand Outlet stores and 3 free standing stores) in FY18, bringing the total store count to 143. Its FY18 revenue improved 6.9% on the back of the higher store count.

• Moving forward, management plans to open 4 new stores (2 Padini Concept and 2 Brands Outlet stores) and refurbish around 5 stores in FY19F. We believe the lower store additions and the temporary close-down of 5 stores will further impede its SSSG.

Source: AmInvest Research - 2 Nov 2018