- It was announced on Bursa Malaysia yesterday that an exclusive 10-year deal to distribute VNC women's shoes and accessories in Indonesia has finally been signed between Padini Holdings and Singapore's FJ Benjamin Group. The Vincci products, produced by Padini, will be sold under the brand name of VNC in Indonesia. 

- Under this deal, through FJ Benjamin's associate, PT Gilang Agung Persada, targets to open 25 stores within a period of five years in Indonesia (with investments ranging from RM0.9mil to RM1.2mil per store). Padini's management expects five stores to be opened in the first year of operations. The first store is expected to open in December this year. VNC will run like a franchise, whereby FJ Benjamin is solely responsible for both capital expenditure and marketing requirements.  

- We are positive and excited about this partnership given FJ Benjamin's established presence for over 30 years in Indonesia and more importantly, it has succeeded in building up many foreign brands there. Furthermore, its associate PT Gilang Agung Persada has an intensive network of stores in Indonesia, retailing foreign brands. This, we believe, enables Padini to penetrate into the Indonesia market at a much faster pace.

- Backed by such a strong partnership and Padini's strength in product development, we opine the VNC's brand name would be propelled to a different level ' underpinned by its immense knowledge of the local market, strong experience in operating businesses in Indonesia as well as a track record in managing global and regional brands.

- We would not be surprised should the VNC products receive good or overwhelming response from the Indonesia market, fuelled by affordable pricing and fashionable items. Notwithstanding this, Indonesian customers will enjoy the same extensive range of VIncci products as their counterparts in Malaysia. All new products will be launched simultaneously in both countries. 

- Given that sales to FJ Benjamin is at a cost-plus basis, the impact on Padini's earnings is minimal in the near- to medium-term, unless the distribution network grows considerably large in Indonesia. We see potential in earnings contributions from this deal in the long term. 

- We maintain our BUY rating on Padini with an upside bias pending a discussion with management. Our DCF-based fair value of RM2.15/share is currently under review. The FY12 result is expected to be released at month-end. We continue to like Padini for its strong franchise value and sustainable robust earnings growth.