PP10551/09/2012 (030567) 04 May 2012

MALAYSIA EQUITY Investment Research Daily

Company Update
The Research Team +60 (3) 9207 7688 research2@my.oskgroup.com

Padini Holdings
"In-Vincci-ble"!
During our recent tour of Vinccis designer team office and Padini warehouse, we got a sneak peek of Padinis gorgeous Oct/Nov collections. We like the companys solid fundamentals and the fact that its expansion plans are well on track. The impact of Malaysias implementation of a minimum wage on Padini is marginal as it is cushioned by a robust top-line. As its upcoming earnings are likely to improve in tandem with its aggressive store expansion, we are raising our FY12 and FY13 forecasts by 4.9% and 5.8% respectively. Maintain BUY, with a FV of RM2.13. A special tour. Last week, we visited Padini Holdings for a behind-the-scene tour of its Vincci designer office and warehouse. We were among the lucky ones who got to view its October and November shoe and bag collections in the Vincci showroom. Padini owns 3 warehouses at the Hicom Glenmarie industrial park. We also visited the companys apparel warehouse. Minimum wage not an issue. The minimum wage for Peninsular Malaysia has been set at RM900 while that for Sabah and Sarawak is RM800. The private sector has been given a grace period of 6 months to implement this policy. We believe this would have negligible impact on Padinis earnings because: (i) the companys lowest wage is RM800 and RM600 for West and East Malaysia respectively, which is not too far from the prescribed minimum wages, and (ii) the affected staff comprises <10% of the companys 3k employees. Still in talks with FJ Benjamin. As we highlighted in our previous report, the management is still in discussions with FJ Benjamin Indonesia in relation to the Vincci (under the brand name VNC) franchise. The potential collaboration would allow Padini to expand overseas, especially in the relatively untapped market of Indonesia, by leveraging on the expertise of FJ Benjamin. Maintain BUY. Padini will be opening another Brands Outlet at Fahrenheit 88 in Bukit Bintang in FY13. The company also plans to launch a new line of childrens wear for its Brands Outlets by year-end. We believe that the companys upcoming quarterly results are likely to be better than expected given its aggressive outlet expansion. Assuming a stronger top-line, our FY12 and FY13 forecasts are revised up marginally by 4.9% and 5.8% respectively. Maintain BUY, with a new FV of RM2.13, as we roll over our valuation from FY12 to FY13. As the groups performance has been encouraging, we expect management to be more generous in dishing out dividends in the future.

BUY
Fair Value Previous Price
CONSUMER /RETAIL Padini is involved in the retailing of apparel, footwear and accessories.

RM2.13 RM1.80 RM1.75

Stock Statistics Bloomberg Ticker Share Capital (m) Market Cap 52 week H | L Price 3mth Avg Vol (000) YTD Returns Beta (x) Shariah Compliant Major Shareholders (%) Yong Pang Chaun Skim Amanah Saham Bumiputera

PAD MK 657.9 1,157.9 1.85 0.82 2,199.0 60.6 1.19 YES

44.0 5.0

Share Performance (%) Month Absolute 1m 27.0 3m 39.6 6m 84.9 12m 74.4

Relative 25.5 33.0 64.5 51.1

6-month Share Price Performance

1.90 1.80 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 Nov-11 Dec-11 Jan-12 Feb-12 Feb-12 Mar-12 Apr-12

FYE June (RMm)

Revenue Net Profit % chg y-o-y Consensus EPS (sen) DPS (sen) Dividend yield (%) ROE (%) ROA (%) PER (x) BV/share P/BV (x) EV/EBITDA (x)

FY09
475.5 49.5 18.7 7.3 2.7 1.5 24.3 17.1 23.9 0.30 5.8 12.9

FY10
518.8 61.0 23.1 9.0 3.0 1.7 26.0 17.1 19.4 0.35 5.0 9.9

FY11
568.5 75.7 24.2 11.2 4.0 2.3 26.8 17.0 15.6 0.42 4.2 8.5

FY12f
695.1 90.5 19.5 87.0 13.4 6.4 3.5 27.4 18.2 13.1 0.49 3.6 7.0

FY13f
773.1 102.8 13.6 100.1 15.2 7.6 3.3 26.3 18.3 11.5 0.58 3.0 5.6

OSK Research | See important disclosures at the end of this report

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Whats behind the Runway? InVinccible. Being one of Malaysias prominent shoe brands, Vincci is constantly pushing the boundaries and introducing hot-off-the-runway shoe designs at affordable prices for women. Recently, we went one step further to see first-hand what happens behind the scenes by visiting Vinccis designer office, where it has a showroom replicating an actual Vincci shoe store at the office displaying the export merchandise for the new season. We were fortunate to be able to get an early glimpse of the shoes and bags for the October and November season. Party, casual and formal. The companys team of 7 designers comes out with a total of 50 new shoe designs every month. Occasionally, some shoe designs are also sourced from its China factory in order to provide variety. The 3 main categories of Vinccis shoes Party, Casual and Formal cater to a broad clientele. Each month, the best-selling items are highlighted and the designers responsible for such items will be recognized. Normally, casual shoes such as flats draw a higher selling volume compared to high heels. Manufacturing of the products is outsourced to 21 footwear manufacturers in Malaysia, while besides importing certain special materials from China, most of the raw materials is sourced locally.

Figure 1: Short briefing

Figure 2: Different types of heels

Source : OSK

Source : OSK

Figure 3: Shoes material

Figure 4: Vincci showroom

Source : OSK

Source : OSK

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Touring the warehouse 3 warehouses. These 3 warehouses are situated along the same road. We visited the apparel warehouse just a block away from Padinis headquarters. The other 2 warehouses are for Vincci shoes and non-trading items such as hangers. Each day, the warehouse will receive 200k-300k pieces of garments from China, Vietnam, Hong Kong and other countries. Packing and pallet labeling is carried out according to brand, quantity, product type and outlet. Typically, it takes 3-5 days to distribute the goods to the outlets. Apparel warehouse. In the double-storey apparel warehouse, each level can store up to 4k pallets, giving a total capacity of 8k pallets. The first level is used to keep the new arrivals waiting to be transferred to the nd outlets, while the 2 is for off-season and returned merchandise. Similar to manufacturing, the logistics work is outsourced to freight forwarders and the companys internal logistics department is only responsible for coordinating the logistics arrangements. Figure 5: Apparel warehouse Figure 6: Carton of garments

Source : OSK

Source : OSK

Figure 7: Pallet label

Figure 8: Delivery area

Source : OSK

Source : OSK

OSK Research | See important disclosures at the end of this report

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EARNINGS FORECAST

FYE June (RM m) Turnover EBITDA PBT Net Profit EPS DPS Margin EBITDA (%) PBT (%) Net Profit (%) ROE (%) ROA (%) Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders Funds Net Gearing (%)

FY09
475.5 88.8 67.6 49.5 7.3 2.7

FY10
518.8 109.2 86.3 61.0 9.0 3.0

FY11
568.5 128.5 105.1 75.7 11.2 4.0

FY12f
695.1 152.9 123.9 90.5 13.4 6.4

FY13f
773.1 174.0 140.8 102.8 15.2 7.6

18.7 14.2 10.4 24.3 17.1

21.0 16.6 11.8 26.0 17.1

22.6 18.5 13.3 26.8 17.0

22.0 17.8 13.0 27.4 18.2

22.5 18.2 13.3 26.3 18.3

81.2 208.2 289.4 81.8 126.4 3.5 204.0 Net cash

92.3 264.3 356.6 111.4 153.0 10.9 234.3 Net cash

94.6 349.8 444.4 138.0 211.8 23.7 282.7 Net cash

108.3 388.8 497.1 139.3 249.5 16.6 329.7 Net cash

105.2 455.4 560.6 151.0 304.4 11.6 391.4 Net cash

OSK Research | See important disclosures at the end of this report

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All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial OSK Research Guide to Investment Ratings instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, employees and/or connected persons may periodically hold an interest and/or underwriting Buy: Share price may exceed 10% over the next officers, 12 months commitments in the securities mentioned. Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Distribution in Singapore Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to "Institutional Investors", "Expert Investors" or "Accredited Not Ratedas (NR) : Stock not within regular research coverage Investors" defined in is the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd ("DMG"). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research. Published by OSK Research Sdn. Bhd., 6th Floor, Plaza OSK, Jalan Ampang, 50450 Kuala Lumpur Printed by Xpress Print (KL) Sdn. Bhd., No. 17, Jalan Lima, Off Jalan Chan Sow Lin, 55200 Kuala Lumpur OSK RESEARCH SDN. BHD. (206591-V) (A wholly-owned subsidiary of OSK Investment Bank Berhad)

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