Monday, May 4, 2015

My thoughts on Padini

I have been asked on Padini -
Why am I not doing anything about it, since the price has dropped substantially from the original purchase.

The performance of its stocks and financials have been deteriorating. Why?

Would the weakening of the ringgit be affecting its performance?

Why am I not selling then if I foresee the performance to be weakening in the immediate term.

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These are my take.

Retail is definitely being hit especially for the non-essential goods. For Padini, it does come under a combination of both non-essential or to some extent essential. It all depends of the category of its customers. If the customers are working adult, they would definitely be needing new clothes and Padini targets the middle income. Currently, the low and middle income are the hardest hit in terms of inflation that has been affecting due mainly to GST. This will affect Padini and many other clothes retailers.

On top of the lower consumption power recently, I can see that Padini is also hit hard by higher rent and the lesser concentration of malls. If there are too many malls, it may not be a good thing for retailers as they are spread thin. This is possibly happened to Padini. It just expanded too aggressively and have their operations in too many malls. I rather they pick the higher traffic ones. My understanding is that this is due to the attractive part of starting early with a mall, where they get better deals especially store space and rentals.

Despite the lesser than stellar performance, I still think Padini will be a good stock to hold over the long term. Firstly, it is definitely not expensive today. It is a solid dividend stock. The strengthening of dollar is affecting all the other competitors and sooner or later, clothing retailers will increase their prices. They in fact are doing it already.

I still see the strategy and its space that Padini is in, there will be lots of expansion opportunity. It should start looking at expanding its franchise overseas and on the corporate front, perhaps should even consider buying back stocks rather than just dividends.

6 comments:

Dav C said...

Hi Felicity,

I want to ask question about the cut profit? I have some trouble to determine when to cut profit when i am in profit. Sometimes, i see myself in 30% profit and the next two day, i only earn 10% profit due to profit taking. Can you teach how to determine when is the time to take profit?

From,
DavC

谭振聪 said...

Fashion stocks r juz like tech stocks, tech keeps on changing, fashion also keeps oso changing.

Padini is soon gonna be like Nokia.

Btw, what do u think about Mulpha International, like TA, it has lots of overseas asset.

felicity said...

Dav C

I presume you are into stocks that have very high volatility. Quality companies does not need one to sell unless those fundamentals change significantly or it is way overpriced, then one can take opportunity to sell.

On fashion stocks being unpredictable like tech stocks, well I do not agree entirely. It is cyclical, and it depends on the designers at times, but not necessarily all clothing retailers are as cyclical as some of the tech businesses.

In fact not all tech businesses are as volatile as the example of Nokia or Blackberry. This is because of whether it is mainly a B2C market or B2B market.

Mulpha International looks interesting.

Fung C.F. said...

Hi Felice,

I can't resist to add my view on Padini.

While I still think that they have a strong brand within Malaysia, their competitiveness is no longer as strong as in the past, mainly due to one name -- UNIQLO.

Not sure about others, but I hardly buy from Padini/Brands anymore, because Uniqlo is very affordable and stylish, it is totally no brainer if I have to choose between them.

While I still believe they can grow the revenue, profit margin is gonna be SUPER tough moving forward. The economic "moat" of Padini is getting worse if not better. And E-commerce of fashion in Malaysia has not even "started" yet.

Fortunately for Padini, they have been keeping a healthy balance sheet, which in worst case, they won't go bankrupt, but for almost certain that their ROE will go lower and lower over the next few years.

felicity said...

Hi CF

To some extent agree. Uniqlo is partly held by Wing Tai.

I guess spending power has deteriorated. It has deteriorated after the election where the government is taking measures to cool down the economy - and it is the right thing to do but unfortunately is putting pressure on businesses as well as the general public.

LuPorTi said...

Just noticed that you have updated comment on Padini.

For me, comparing to raising cost, I have less worry on its competition. Undeniable that a lot of people around me have been saying that they don't buy Padini as they are now prefer Uniqlo and H&M than Padini. Despite a lot people are saying these, Padini Concept Store and Brands Outlets continue to be filled with crowded. After a slight stagnant in FY2014, Padini sales once again accelerate to achieve more than RM200 million revenue in quarterly ended 30 September last.

As share price deteriorating, I guess it may be a good chance for us to accumulate the shares?