We visited Padini recently and gather that its collaboration with FJ Benjamin is on track.  The  first  Vincci  outlet  under the  brand  name  'VNC' will  be  launched  at  the end  of  this  year  in  Pondok  Indah  Mall  in  Jakarta.  Nonetheless,  the  pace  of opening new local stores is likely to slow down as fewer new malls come up. The group  will  be  introducing  a  new  shoe  brand  to  replace  the  Vincci+  merchandiseserving  the  higher-end  segment.  Maintain  NEUTRAL,  with  FV  unchanged  at RM2.22 based on 15x FY13 EPS.

Brands  Outlet  the  eternal  jewel. In FY12, the group was on an expansion spree as it opened 14 new stores ' including six Brands Outlets ' which boosted Padini's earnings by  25.4%  y-o-y.  The  company's  Brands  Outlet  is  still  the  main  revenue  earner, registering robust same-store-sales (SSS) growth of >20%, followed by Padini Concept tore  and  Vincci,  each  with  SSS  growth  of  ~15%.  Meanwhile,  its  new  20,000  sq  ft Brands  Outlet in Fahrenheit 88  opened  last  month.  Going forward,  the  opening of new stores is likely to moderate given the space constraints arising from the limited number of new malls being developed.

VNC  outlet  debuts  in  Jakarta.  In  early  August,  Padini  signed  an  exclusive  10-year master franchise agreement with FJ Benjamin Group to distribute Vincci women's shoes and accessories under the brand name 'VNC' in Indonesia. A total of 25 stores will be opened within the next five years through FJ Benjamin's Indonesian  associate,  PT Gilang Agung Persada. The first outlet ' in Jakarta's Pondok Indah Mall (PIM) - will be launched by the end of this year. Being located in the wealthy Pondok Indah suburb of South Jakarta, the mall will cater to the affluent market. The contribution from Indonesia is  expected  to  be  minimal  in  the  next  two  years  given  the  low  number  of  outlets.  For now,  Padini  does  not  have  any  concrete  plan  to  expand  overseas  and  will  continue  to focus on the domestic market.

To unveil new shoe brand. The group will replicate the success of its Vincci brand by introducing a new brand catering to the higher-end market at the end of this year. In the meantime,  the  four  Vincci+  stores  targeting  the  luxury  segment  will  be  closed  down eventually but we expect the impact on the bottomline to be negligible.

Maintain  NEUTRAL. We believe Padini will still deliver decent  results even though the competition  among  retailers  remains  intense,  especially  after  the  opening  of  the Swedish fashion retailer, H&M maiden store last weekend.  Shoppers might be drawn to the  new  opening  in  the  short  term  but  we  think  Padini  will  still  be  able  to  defend  its position  with  its  extensive  network  throughout  Malaysia.  Given  the  limited  share  price upside, we are maintaining our NEUTRAL recommendation, with our FV unchanged at RM2.22.

Source: OSK