midas_max

在此地,知其樂也~

2014-01-23 12:40

calvintaneng

Post removed.Why?

2014-01-23 21:00

keanpoh

Hi calvintaneng,

I do agree with you on the basic necessities. But do remember that food and clothing are in monopolistic market, which means barrier to entry is low. Competitors can enter the market easily to share the profit in the market. Therefore, the pricing power of businesses operating in these industries are low and sometimes they have to offer sales to boost their sales but sacrifices on the profit margins.

Yes, clothing is a necessity. But if Padini is not doing well, people can easily buy from its competitors. All these said, it really depends on how Padini managed to differentiate itself from its competitors and thrive in the industry. That's how I look at this industry (as well as the food industry).

2014-01-24 11:17

cct

此地不樂也^^^

2014-01-24 11:26

Joonism

hi kcchongnz,

thankss for your interesting analysis article. Btw would you mind show the exact way of calculating the intrinsic value based on the theory of investment value (formulation) that have been stated? Much appreciated!

2014-01-30 00:59

kcchongnz

Posted by Joonism > Jan 30, 2014 12:59 AM | Report Abuse
hi kcchongnz,
thankss for your interesting analysis article. Btw would you mind show the exact way of calculating the intrinsic value based on the theory of investment value (formulation) that have been stated? Much appreciated!

Financial theory postulated by John Burr Williams in his “The theory of investment value” says that the value of a stock is worth all of the future cash flows expected to be generated by the firm, discounted by an appropriate risk-adjusted rate.

The theory and the mathematics of it are actually not that difficult. Let us apply it for Padini with its free cash flow (FCF) of the firm of RM68777 thousands last financial year ended 30 June 2013. Let’s assume this FCF will grow at g=12% for the next 5 years and 3% forever after that. Finally we use R=10% discount rate or the cost of capital for the firm. The table below shows the growth and its FCF each year (CFn) and the present value of free cash flow (PV FCF):

Year, n 0 1 2 3 4 5
FCF each year, CFn xxx 77030 86274 96627 108222 121209
PV FCF=CFn/(1+R)^n xxx 70027 71301 72597 73917 75261

The sum of the PV FCF is added up and equals to RM363103 thousands. This is the PV of FCF for the first 5 years. The subsequent FCF, or terminal FCF is given by the formula:

Terminal FCF, $=CFn(1+g)/(R-g)=121209*(1+3%)/(10%-3%)=1783498

The discounted terminal FCF = 1783498/(1+10%)^5=1107412

Hence total PV FCF of firm=363103+1107412=1470515

There is an excess cash of 206226 which is presumably not required for the ordinary operations and we have to add to the PV FCF. Furthermore, this PV FCF does not belong to the common shareholders alone. It is shared with the debt holders and minority interest, if any. Assuming the market value of the debts is same as the book value (which need not necessary true), the PV FCF attributed to common shareholders is,

1470515-35964+206226=1460777

Divide this value by the number of share of 657910, the PV FCF, or intrinsic value of Padini is RM2.49 per share. At the present price of RM1.60, the margin of safety is 36%.

Theory and mathematics of valuation is straight forward. However, the judgments on the future cash flows and the discount rate are the more important parameters.

2014-01-30 10:14

Elwin Kai Kai

kc thanks for ur analysis is very clear and straight forward is just im a bit confuse of the symbol..sry still new to investing

2014-01-30 11:18

Joonism

Thx alot for such detail explaination! I understand now..Just wonder if there are any other instrictic value calculation other than this projected free cash flow based formula? Btw how does we justify R and g usually? Any factors that influence the variables?

2014-01-30 11:57

Horsefield

Joonism, you can refer to the links posted by Tan KW before. It explains your doubt above.

http://klse.i3investor.com/blogs/kianweiaritcles/44139.jsp
http://klse.i3investor.com/blogs/edu_morg_star/31605.jsp
http://klse.i3investor.com/blogs/edu_morg_star/31670.jsp

Below is excel template readily in Internet. Please do some modification for the said debt & minority interest adjustment.
http://www.focusinvestor.com/DiscountedCashFlows.xls

Happy CNY..

2014-01-31 12:17

Joonism

thx alot Horsefield!happy CNY!

2014-01-31 18:03

tiffanie

Dear all, I am a newbie here and in the stock market as well, would really like learn from you all about the stock investment.

I am targeting for Padini as well. Apart from its good past years performance and sticker price calculation, I am also her loyal and regular shopper. I agree that since the entry of H&M and Uniqlo to Malaysia, they attracted a lot of youngsters and fashion lovers. However, personally I think that Padini will still remain the choice for the youngster, young adults and middle class family.

Reading its Chairman's statement in Annual Report 2013, Padini is targeting young adults who tend to spend a lot but have limited disposable income. I am happy to hear that, simply because I am in the group they target! Of course, we do love to shop H&M and Uniqlo. However, young people like college students or young adults who just starting to work (like me), will still shop at Padini for simple round neck Tee, shorts, sandals, sling bags, etc etc., which are the typical weekend attire. Doesn't it a good sign for the investors who target to Padini?

Apart from that, through my personal experience and chit-chatting with friends about fashion, I realize that Padini apparel designs are more related to the Asian's / Malaysian's style, in term of the size and cutting. I guess this is the advantage for Padini to remain competitive in the sector.

This is my little point of view, I hope this is not a non-sense for you. (Haha!) Do comment or feedback to me, I am happy to learn and discuss. Appreciate! :)

2014-02-02 16:49

kcchongnz

Posted by Horsefield > Jan 31, 2014 12:17 PM | Report Abuse

Joonism, you can refer to the links posted by Tan KW before. It explains your doubt above.

http://klse.i3investor.com/blogs/kianweiaritcles/44139.jsp
http://klse.i3investor.com/blogs/edu_morg_star/31605.jsp
http://klse.i3investor.com/blogs/edu_morg_star/31670.jsp

Below is excel template readily in Internet. Please do some modification for the said debt & minority interest adjustment.
http://www.focusinvestor.com/DiscountedCashFlows.xls


Excellent recommendation from Horsefield, especially the articles from Morning Star which explains in detail the discount cash flow analysis, the estimation of future cash flows and discount rate.

Well done.

2014-02-04 09:16

kcchongnz

tiffanie,
Reading your post I have the view that you have a good future in investing. I appreciate your view here as a young person which is very relevant to Padini. But as a young person, you should first strive to safe and invest (wisely). Saving is not an easy thing to do in this high inflation environment.

Few people read the annual report like you do. Many "seasoned investors" don't even bother about the business of the companies they invest in. Yes the chairman's statement is important as you can have a grasp of where he will lead the company to in the future and facing competition which is inevitable in a capitalist country.

During this Chinese New Year, I have the opportunity to walk around MegaMall a couple of times. I personally could see there were more shoppers in Uniqlo than Padini stores. Talking to my young children, they seem to prefer Uniqlo then Padini. So I am not sure if it is a trend among the youngsters. If so, there certainly are stiff competitors for Padini. But Padini has more stuff than Uniglo and H&M.

If there is this stock of Uniqlo and Padini with everything equal, I may invest in Uniqlo rather than Padini. But there is no Uniglo stock (unless one invests through Wing Tai). And there is this price issue. There is no price-value relationship for Uniqlo, whereas there is for Padini as described in this blog. Secondly with the proven management capability of Padini, and reading through the Chairman's statement, I don't think they will sit still and do nothing to improve their business.

Hence I still think Padini is a good investment in view of its high efficiencies and reasonable price, and a proven capable management.

2014-02-04 09:48

tiffanie

@kcchongnz, thanks a lot for your comments to me, it is definitely a very precious encouragement for me. Thanks for your advice as well. I agree strongly that young people like me should save and spend money wisely, and more importantly, to study and learn to invest. As a beginner, I can only start small due to the limited modal. That's why every cent becomes important to me and I have to make sure every single cent would help to grow my "snow ball". (Haha.)

I agree your point of view that young people would prefer Uniqlo than Padini. Anyway, hopefully Padini management will react wisely. Perhaps it is the time for Padini to refresh its brand name to remain competitive.

Thank you for your sharing. I learn so much while reading your analysis and the comments. They are so valuable to me! :)

2014-02-04 18:26

kcchongnz

tiffanie,

I am amazed of your language and communication skill, and above all your mature thinking about investment. Keep improving yourself by reading the books and articles by the investment giants such as Warren Buffet (Letters to shareholders of Berkshire Hathaway), Charles Munger, Peter Lynch (One up wall street), Joel Greenblatt (you can be a stock market genius too), Howard Marks (the most important thing illuminated), Seth Klarman (Margin of safety), Philip Fisher (Common stocks and uncommon profit), Aswath Damodaran on valuations etc.

Also I encourage you to read some of my articles below:
http://klse.i3investor.com/blogs/kcchongnz/45373.jsp
http://klse.i3investor.com/blogs/kcchongnz/45226.jsp
http://klse.i3investor.com/blogs/kcchongnz/45032.jsp
http://klse.i3investor.com/blogs/kcchongnz/44995.jsp
http://klse.i3investor.com/blogs/kcchongnz/44344.jsp

2014-02-04 19:18

tiffanie

@kcchongnz, again, thousands thanks for your advise and generosity! This encourages me very much to move on! I have a long way to improve and a lot to learn. The books and your articles that you recommended must be a treasure for me. Thank you and I promise will study them properly. Thank you! :)

2014-02-04 22:45

bigFAT

downtrending counter again..careful...good counter? excellent disposal also!!! don't be trapped

2014-02-12 23:58

wattapi

oredi loss money...dunno uniqlo,h&m..mean dun know risk

2014-02-13 00:05

kcchongnz

Posted by wattapi > Feb 13, 2014 12:05 AM | Report Abuse

oredi loss money...dunno uniqlo,h&m..mean dun know risk


"oredi loss money?" What is oredi? What is "loss money"?

Which year or quarter you refer to that Padini "oredi loss money"?

"dunno" uniqlo, h&m means "dun" know risk? Hah!!!!

2014-02-13 09:15

ladzatz

kc why the graph starts the reading from right...many people not seeing thoroughly may be confuse and dump the stock!!!

2014-02-13 17:55

wattapi

Post removed.Why?

2014-02-13 17:58

wattapi

old man alwiz want to win...kena challenge terus letup

2014-02-13 17:59

GenghisHoe

Hi kcchongnz, wattapi refers to the current price as compared to your present price aforesaid (at RM 1.74), so on the surface, he judged a loss on PADINI -- a fool who did not care about the business itself but purely on the share price movement.

kcchongz, do you have any ebooks on the below recommended books by you? If yes, can you kindly share with me? By the way, I'm a neophyte in the stock market and hope to learn from you as previously I glanced through your articles that really showed how to put those jargons -- financial measures into action...

"Keep improving yourself by reading the books and articles by the investment giants such as Warren Buffet (Letters to shareholders of Berkshire Hathaway), Charles Munger, Peter Lynch (One up wall street), Joel Greenblatt (you can be a stock market genius too), Howard Marks (the most important thing illuminated), Seth Klarman (Margin of safety), Philip Fisher (Common stocks and uncommon profit), Aswath Damodaran on valuations etc."

Also, can you share any books about the author, Charles Munger?

Nice to meet you.

2014-02-14 07:30

kk123

Padini not that great compare to wingtai

2014-02-14 07:52

Hulk

kk123, wingtai got great EPS>30sen in 2012, PE=7.
Padini got PE of 13, but the dividend yield is better than wingtai.
And, Padini is in net cash condition.

2014-02-14 08:06

kk123

Padini would be a good company if u discovered it few years ago
Now unless there is new growth I don't see any rerating catalyst
Wingtai sort of its that "growth" stock now
Ok I don't own any Padini or wtm share

2014-02-14 08:10

Hulk

kk123, thank you for the info.
I hold some Padini, just for the dividend purpose.
I think i will study Wingtai too.

2014-02-14 08:15

kcchongnz

Posted by GenghisHoe > Feb 14, 2014 07:30 AM | Report Abuse

Also, can you share any books about the author, Charles Munger?

Somebody got the ebook by Seth Klarman, "Margin of Safety" from the net before. it is a good book. Try finding it.

I don't know of any book by Charles Munger. There are some philosophies of his in the net.

2014-02-14 13:21

GenghisHoe

Hi kcchongnz, thanks! May I have your email? I would like to make friend with you and learn from you how to analyse a company wisely. Text me at boaster_kokhoe@hotmail.com if you accept to make friend with me. XÞ

2014-02-15 08:50

sense maker

No one mentioned Zara and G2000 which also give Padini a good run for its money, in addition to H&M, Uniqlo and myriads of other lesser-known garment names.

2014-02-15 11:57

GenghisHoe

Hi sense maker, may we make a friend? Nice to meet you ya. If not forgotten, you had vast working experience in China. XÞ

2014-02-16 11:09

freecooper

Hi kcchongnz, it is always great to read your articles! Do you mind teaching us how you get the Free Cash Flow amount of RM 68777 thousand? Do you use the annual report or audited account or the average of free cash flow past few years (as you did for KFIMA)? Hope you can guide us in this! TQVM

2014-02-16 16:53

kcchongnz

Appended below is the FCF for Padini for the last 5 years. Whether you extract from audited accounts or annual reports, they should be the same.

Year 2013 2012 2011 2010 2008
CFO 161629 76728 30792 111276 80585
Capex -16117 -26836 -24030 -27677 -22465
FCF 145512 49892 6762 83599 58120

As you can see CFO and FCF are lumpy, very lumpy actually. I would be too optimistic if I take last year's FCF of 145.5m, or extreme pessimistic if taking 2011's FCF of 6.8m only. Don't you agree?

So I compute the recent 5 years FCF and used that as the base. The average 5-year FCF of 68.8m appears to be reasonable when compared to the rest of the numbers.

So it is a matter of judgement of the future FCF which is very subjective. Hence if I want to confirm my thesis of investing in this share, i try to have conservative assumptions. Also I would have to use other methods of valuations in tandem.

2014-02-16 17:57

kcchongnz

Katsenelson’s absolute PE of Padini

For those who are interested in this valuation method, you can refer to the following link:

http://klse.i3investor.com/blogs/kianweiaritcles/36512.jsp

This model derives the intrinsic value of the stock based on the following five conditions.
1. Earnings growth rate
2. Dividend yield
3. Business risk
4. Financial risk
5. and earnings visibility

The model first starts with a no growth P/E ratio of 8 (original), or an earnings yield of about 12%, and then adjusted according to its growth rate and dividend yield to derive a basic P/E. The adjustment can be extracted from Table 3 below:


Padini’s revenue and net profit has been growing at 16% and 17% respectively for the last 6 years. But this growth has slowed down somewhat. It is prudent to assume that the expected growth in the future to be 5%. Basic PE for Padini with an expected growth rate of 5% and a dividend yield of 5.0% is,

Basic PE = 8 + 0.65*5.0 + 5.0 = 16.2

Business risk: PADINI’s business has high efficiencies with high return of assets of 17% and high return of capital of 45%. It has quite stable and reasonable operating profit margins of more than 15%. Its cash flow from operations is also stable, about the same as its net income. It has stable and high free cash flow every year, averaging about 10% of revenue. Cash return (FCF/IC) is also great. However there is some keen competition for its products recently. So neither premium nor discount is applied here to be prudent.

Financial risk: PADINI has a healthy balance sheet. Hence a discount of 5%is applied to the financial risk.

Earnings visibility: Again, as competition is creeping in, we assume the earnings for the future is uncertain. Hence a premium of 10% is applied to earnings visibility as a conservative assumption.

Hence the absolute PE for PADINI is:

Fair Value P/E = Basic PE x [1 + (1 - Business Risk)] x [1 + (1 - Financial Risk)] x [1 + (1 - Earnings Visibility)]
Fair value P/E = 16.2* [1+(1-100%)] *[1+(1-100%)] * [1+(1-120%)] = 15.3
Earnings per share 2013= 13 sen
Fair value of Padini= 15.3*0.13 = RM1.99

2014-02-16 21:48

AyamTua

noted and thanks for formulae .......

2014-02-16 21:51

freecooper

hi kcchongnz, thank you very much for your explanation on how you derived your FCF for the computation of intrinsic value by DCF valuation.

On the other hand, for absolute PE for PADINI based on your assumptions, shouldn't the fair value P/E
= 16.2*[1+(1-100%)]*[1+(1-95%)]*[1+(1-110%)] = 15.31??

TQ

2014-02-16 22:39

GGmalaysia

as far as i know, H&M do not attract much men design too fast to be outdated, and uniqlo do not attract many women.their design are dull and only good for males

ok so here's the catch, what i forsee that if economy is good, pasar malam will be the first 1 to die. people from lower income tends to buy padini (upgrade standard lah, whatelse?)

if economy down? hermes, AX and raplh lauren will lose moeny, higher income shifting to afforable clothing.

so if padini is situated in middle range. it will never die off. their T-shirts are attractive thou

2014-02-16 23:08

kcchongnz

Posted by freecooper > Feb 16, 2014 10:39 PM | Report Abuse

hi kcchongnz, thank you very much for your explanation on how you derived your FCF for the computation of intrinsic value by DCF valuation.

On the other hand, for absolute PE for PADINI based on your assumptions, shouldn't the fair value P/E
= 16.2*[1+(1-100%)]*[1+(1-95%)]*[1+(1-110%)] = 15.31??

freecooper, yeah the fair value P/E is 15.3, and that was what I got from the excel sheet, except that I did not change the numbers in the formula which was in original word document when I copied and pasted it.

Thanks for pointing out the errors.

2014-02-16 23:29

wayneteo

Besides Padini corp, one of the company that under Padini which is Brands outlet and P&CO that under Yee Fong Hung SB also contribute quite a lot of revenue into the company, which is currently second largest revenue under their 5 trading subsidary companies. I hope that the new stores that have opened since the beginning of the 2014 financial year + those in the pipeline will boost the earning ahead. Hope Padini will up to its fair value as calculated by Kcchongnz.

2014-02-17 13:13

kcchongnz

Posted by wayneteo > Feb 17, 2014 01:13 PM | Report Abuse

Besides Padini corp, one of the company that under Padini which is Brands outlet and P&CO that under Yee Fong Hung SB also contribute quite a lot of revenue into the company, which is currently second largest revenue under their 5 trading subsidary companies. I hope that the new stores that have opened since the beginning of the 2014 financial year + those in the pipeline will boost the earning ahead. Hope Padini will up to its fair value as calculated by Kcchongnz.


Posted by kcchongnz > Feb 4, 2014 09:48 AM | Report Abuse X

Secondly with the proven management capability of Padini, and reading through the Chairman's statement, I don't think they will sit still and do nothing to improve their business.

Hence I still think Padini is a good investment in view of its high efficiencies and reasonable price, and a proven capable management.


wayneteo, thanks for your valuable input.

Padini just announced its quarterly results ended 31st December 2013. Its revenue and net profit increased by 13% and 48% respectively compared to the corresponding quarter for fy 2013.

Yes, there are competitions from uniqlo, H&M, Zara, G2000 etc. there have been competitions all this while. However it has been proven that the management of Padini would face the challenge and bring Padini to the next phase of growth. It does appear so for the results of the last two quarter, doesn't it?

2014-02-26 22:53

wayneteo

Thanks Kcchongnz for the reply and i'm looking forward to learn from you and in fact learn a lot from the article that shared by you.

I personally think that with the opened of Brands outlet is a good move and the increase in revenue came mostly from Brands Outlet stores as I can see that the increase of traffic in Brands Outlet during CNY this year and the gross margin are also higher. This year Padini going to open 3~4 stores again throughout the Malaysia so future prospect wise, I'm still positive to it and also I can collect an attractive dividend of 6% which is higher than FD :)

I do hope that Padini can provide me a good return as calculated by you and I will hold on to it for now. Thanks :)

2014-02-27 10:27

yungshen1

thank you kcchongnz.now i realize knm need to cut loss. i will listen to u

2014-02-27 10:30

kcchongnz

Posted by yungshen1 > Feb 27, 2014 10:30 AM | Report Abuse

thank you kcchongnz.now i realize knm need to cut loss. i will listen to u


yungshen1, market is unknowable and unpredictable. I wrote about the shitty financial performance and its terrible financial position many times when you seek my view. That time KNM is about 50 sen. it has risen to even above 80 sen recently. However, I am very aware of the unpredictability of share price and I have never asked you to cut loss, I think. I only gave my view on the fundamentals of the company, not its share price.

One thing I feel very strongly about KNM is that somebody is trying very hard to jack up its share price. Notice the amount of publicity on KNM now in the media, the Edge magazine etc. That was the exact modus operandi used all this while by them previously. They may have succeeded in doing so and I think it may be their distribution time now. So many small timers will "kena". That is just my opinion. I could very well be wrong.

KNM's shitty performance and its financial position has no chance to improve, in my opinion. As far as its share price is concerned, i have no idea at all.

2014-02-27 12:31

benson911

Padini will keep shining again.................

2014-06-08 22:50

bsngpg

I have collected this Stock since last week for its increasing dividend payout and also the one off sell down pressure by Islamic fund which has nothing to do with its core biz performance.
I have also reserved fund waiting for it to drop further so that I can increase my holding. I guess after div ex date this week, another round of selling may resurface which is a great opportunity for me to buy more and averaging down.

Good luck.

2014-06-09 07:29

donfollowblindly

Buying price RM1.74 plus 10sen dividend so actual cost RM1.64, now still lost 20sen(RM1.44). When can reach intrisic value RM2.30 as this blog claim?

2015-02-17 23:02

kcchongnz

Posted by donfollowblindly > Feb 17, 2015 11:02 PM | Report Abuse
Buying price RM1.74 plus 10sen dividend so actual cost RM1.64, now still lost 20sen(RM1.44). When can reach intrisic value RM2.30 as this blog claim?

You must be damn unlucky for following me blindly as you have lost so much money follow the worst two or three stocks in my worst portfolio of 14 stocks as expressed by your comments.

http://klse.i3investor.com/servlets/cube/post/donfollowblindly.jsp

You know KLSE is about flat the past one year when my new portfolio of stocks were written by me and posted in i3investor. The return of this worst portfolio of mine was 13.3%, outperformed the broad market by 12%, as shown in the appended table.

What was your portfolio return for the past one year? Or did you have any to show except follow me blindly? Or rather criticize me blindly?


Stock Ref Price Dividend 18/2/2015 Total return
Kuchai 1.20 0.002 1.41 17.7%
Prestariang 1.25 0.06 2.01 65.6%
Perak corp 3.69 0.085 2.59 -27.5%
Magni 2.63 0.13 2.97 17.9%
Latitude 2.57 0.085 5.55 119.3%
MFCB 2.24 0.06 2.50 14.3%
Padini 1.75 0.10 1.44 -12.0%
Pintaras 2.95 0.14 4.25 48.8%
Scientex 5.74 0.21 6.99 25.4%
Tasco 3.15 0.05 3.07 -1.0%
MRCB Wa 0.275 0 0.210 -23.6%
BIMB W 0.660 0 0.435 -34.1%
Plenitude 3.15 0.06 2.29 -25.4%
Tong Her 2.35 0.12 2.25 0.9%

Av Portfolio Return xxxx xxxx xxxx 13.3%
KLSE 1844 55.32 1810 1.2%
30/11/2013 18/2/2015
Median 7.6%

2015-02-18 00:38

bsngpg

Mr. Chong: 恭喜发财，万事如意！

2015-02-18 07:19

kcchongnz

bsngpg,

Thanks. Same to you and everyone.

2015-02-18 07:46

Icon8888

bought some coastal

: )

2015-02-18 09:52