Posted on August 27, 2013, Tuesday
KUCHING: Padini Holdings Bhd’s (Padini) has been envisaged as poised to resume its expansion in financial year 2014 (FY14) after a year-long hiatus of new store openings. However, its prospects has been viewed as still mired by many challenges.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined in a recent note, larger risks to earnings stem from its contracting margins.
“Padini and the broader retail sector is facing unprecedented challenges where operating costs (such as rental) are skyrocketing on top of the constant need to refurbish its outlets, give discounts and conduct promotional activities to attract customers.
“The notable shift in consumer preferences towards lower margin value-for-money products (such as ‘Brands Outlet’ apparels) would also be the new paradigm going forward,” it added.
Additionally, the research firm noted that the extent of the competition amongst fashion retailers is a big question mark as to how much it will affect product pricing and therefore margins.
“The subsidy rationalisation and goods and services tax (GST) implementations are additional issues that will impact consumer spending.
“Hence, there are risks of more margin compressions beyond our already conservative estimates. However, we note that downside risks at current levels are limited given that the stock had been heavily sold down recently and prospects of new store growth should lend strength to the stock whilst FY14 estimate dividend yield is looking attractive at 5.7 per cent,” it explained.
In addition, Kenanga Research highlighted that Padini is poised to resume its trajectory of new store openings after a year-long hiatus.
“A Brands Outlet store and a Padini Concept store opened their doors in Gurney Paragon last month, and we understand that management is looking to open five more outlets in November to December
period (a Brands Outlet and Padini Concept each in Miri and Seremban, and another Brands Outlet in Langkawi).
“Collectively, this would increase Padini’s total retail floor space by 13 per cent to 811,000 square feet, which will put the company on an expansion track not seen since FY12,” Kenanga Research said.
The research firm lowered the target price of Padini RM1.70 per share (from RM2.15 per share previously), based on a lowered FY14 estimated earnings per share and lowered target forward price earnings ratio of 12-fold versus to 13-fold previously.
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