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Padini Holdings - H&M a potential threat? HOLD

kiasutrader
Publish date: Mon, 08 Oct 2012, 10:05 AM
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- We re-affirm our HOLD rating on Padini Holdings, with an unchanged fair value of RM2.57/share ' based on a 10% discount to our DCF value. Our fair value implies a PE of 13x on FY13F's earnings, above its historical average of 10x and below the market's of 15x.

- The new concept store, H&M, a Swedish retailer, has made its debut in Malaysia. Since its opening two weeks ago, the first store, located at  Lot 10, has been well received by the Malaysian public, while the second store at Setia City Mall opened on 3 October. 

- Similar to Padini, H&M offers a wide range of women's wear, men's wear, kids clothing, lingerie, shoes and accessories, spanning across three floors under one roof at affordable prices and yet, fashionable. 

- We believe H&M's expansion strategy is likely to centre on selected high traffic affluent areas, targeting the middle-income segment. Padini, on the other hand, targets the low-to middleincome groups and geographically well diversified in Malaysia. Given the good initial response to H&M, we will not be surprised if H&M penetrates into other niche and high traffic areas, notably, in the Klang Valley.

- This, we believe, may pose as a challenge to Padini's high traffic operations. The competitive threat is viewed as medium-term in nature as existing retail malls are fully tenanted or have limited space to cater to H&M's huge floor space requirements. But, with the upcoming Sunway Pyramid 3, there is potentially sufficient floor space for H&M. 

- Although floor space availability is somewhat limited in existing retail malls, that may change when tenancy comes up for renewal. Fashion retailers such as Padini's Concept Store and Uniqlo are viewed as mini-anchor tenants. As such, we reckon H&M will be highly sought after as an anchor tenant underpinned by its well-established brand name that could be a strong crowd puller for any retail mall.

- H&M's competitive pricing and affordability has come as a huge surprise given that prices appear to be cheaper than H&M's in Hong Kong and Singapore. Typically, mid-prices' international brands (i.e.: Zara, Topshop, Warehouse) that are affordable in the US and the UK end up as premium ones in Malaysia. 

- Underpinned by competitive pricing, good quality and fashionable clothing, the playing field in the retail landscape is certainty getting more crowded.

Source: AmeSecurities 
PADINI (7052)
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