Thursday, November 29, 2012

Padini for purchase

I like retail stocks cause one just need to observe to make the right pick most of the time. And I like to observe rather than shop actually. As in my previous post, Padini is a company which impresses me. I like the way the company built upon its own house brands in the name of Brands Outlet as well as Padini Concept Store.

If you look further upon Padini, it has built an array of its own brands and put them under its own retail outlets. To do that well, it takes a lot of effort (notice some of the fashion companies did not do as well - even Bonia) but once you have hit the right spot, there is a run. The irony about retailing is, if you are a well-known brand, the malls will look for you. If your brand is unknown, to even get a space is going to be extremely tough.

Padini has done extremely well in this area, to the extent that I believe that the sales from its own outlets overwhelmed its consignment sales with departmental stores. The traffic I see in its Padini Concept Store is amazing.

How do I know that its consignment sales are reducing as compared to its own outlets? Notice the trade receivables (less than 10 days), which is extremely low for a apparel retailing company. It shows that it is doing mostly cash sales itself - and where are these sales from? Its own outlets.

In my previous post, Padini's inventories was a concern which I have mentioned. Why? I do not know how much are old inventories - and that can be a cause for concern for an apparel company. Today, based on its latest quarterly report, that amount has lowered to less than 3 months of stocks assuming this financial year, Padini is achieving RM800 million of revenue, which is to me achievable. A manageable inventory level is positive for company such as Padini.

I have already expected the most recent quarterly performance to be under the weather due to increased competition from brands such as H&M and Uniqlo, but its continuous revenue growth shows that the brands that Padini carries are able to hold their own albeit the margin squeeze.

Apparel retail companies should not fear competition as there are tonnes of brands which will compete against them and as long as they do them correctly, they have their own space.

And with that fear which I see in some investors, I am taking opportunity from the recent downtrend in Padini to buy 4000 units at RM1.76.


The special one said...

I go in too early at rm1.86..think its great opportunity to accumulate more now..

yhtan said...

Finally made up your mind to buy Padini eh, i rate this higher than NTPM pick

felicity said...

Haha, hopefully but there's no fashion trend in tissue paper though...

富升 said...

Sir, can you help to look at Cheetah?

Is Cheetah also healthy and good stock to pick up or pick up and keep.

Hope you can give comment on Cheetah.

Thank you!!

khengsiong said...

oh... you judge its consignment sales from the receivables. I learn something ^^

khengsiong said...

Hi felicity,
In the AEONCR post, you mentioned that we don't judge a financial institution by its cash flow. Maybe you can explain further in a separate post.

felicity said...

Cheetah is an undervalued stock trading at just 6x PE if not mistaken. It has consistently performed financially over the last few years.

However, whenever I look at the business, I see flaws. Its products has great value, however it does not have a good growth story.

Anyone who have bought Padini would be making much more if compared to them holding Cheetah say since 2005.

This does not mean that Padini is expensive, but because in terms of execution I rate Padini much highly as compared to Cheetah.

Anyhow at this price, it is not wrong to say that Cheetah is still a value stock.

CrabGrill said...

I have just started to hold some Cheetah in less than 3 months. To me it is just an assets play and a bond stock. With limited downside, just hold for a surprise. Just a few weeks of holding, it shot to around 0.56 but I didn't sell because I thought it deserves a little higher price.

Padini at this price and balance sheet, I would only buy it if I believe it to be a growth stock (15% increase in sales & 10% increase in profit y-o-y). The risk of buying a growth stock is that it suddenly doesn't grow (according to the quarterly financial result) and disappoint the market. Then the price will fall like an inverted V with sharper edge at the right side. Another thing I try to avoid if given enough of other choices is to avoid businesses that are producing things that China is able to produce and export too. Padini could be a better quality company comparing to its peers in Bursa but I am hesitate to believe that there is much room for it to grow for say, 5 years (profit too, not revenue alone), and therefore it should be priced (lower) as a dividend stock. I am interested to know has there been any dividend policy for Padini?

felicity said...

I don't hear Padini on dividend policy but it seems that they are paying 2sen per quarter if results permits.

keano said...

Hi felicity,

I was reading the Annual Report of Padini and came across the following sentence :

"Subsequent to initial recognition, loans and receivables are measured at
amortised cost using the effective interest method."

Do you happen to know the meaning of "measured at amortised cost"?

Thx in advance!

felicity said...

Read here on loans and receivables measured on amortised costs.,-47-48-The-Future-of-Financial-Rep/Staff-Guidance-Papers-and-Examples-Amortised-Cost.aspx

keano said...

oh, so amortised cost is cost that take the present and future value of money into consideration

富升 said...

I also see Cheetah has problem on growth in terms of sales.

But it make steady income. Generate cash positive cash flow every year (about 10mil).

So even not growth in revenue, but steady cash flow generate, it may be cash cow stock soon.

For Padini, i sold recently because the share price already increase more than 100% lah.

some investor already earn enough and now (technically) time to take profit.

富升 said...

I have not buy Cheetah yet, just add in my close monitor list.

Thank you!