As most consumer stocks reel from the effects of lower personal consumption, Padini Holdings Bhd is holding its ground, thanks to the good performance of its Vincci shoe brand and strong export sales.
Padini was founded by Yong Pang Chaun, who still owns 41% of the company. The company, which originally started as a manufacturer and wholesaler of garments, decided to exit the low margin business in favour of building brands in the mid-end garment fashions and shoes.
The company currently carries eight well-established fashion labels: Vincci shoes (affordable shoes for ladies), Vincci Plus (exclusive shoes for ladies), Padini (work wear for men and women), Padini Authentics (casual wear for men and women), PDI (basics for men and women), Seed (contemporary and trendy clothing for men and children), Miki (children’s wear) and P & Co (affordable fashion for teenage girls).
Vincci shoes generate the largest sales for the group, accounting for 36% of sales in FY2008. Its apparel products are outsourced to Chinese manufacturers while its footwear products are outsourced to Malaysian manufacturers.
Padini has increased the number of its outlets in Malaysia and overseas, from 214 at the end of FY2006 to 276 outlets at the end of FY2008.
Padini has also ventured overseas, with exports making up 10% of its sales in FY2008. The company’s overseas sales are conducted through franchisees. This reduces start-up, advertising, overhead and operating costs for Padini, but margins are lower as the products are sold at a lower FOB (free on board) price to franchisees.
Its largest overseas markets are Asean and Saudi Arabia. The overseas markets offer good growth opportunities for Padini if it can find suitable partners to spearhead its expansion.
Margins have been affected by higher export sales (+36% y-o-y for 1HFY6/2009), which are lower due to higher operating and promotional costs.
Padini is not immune to weak consumer sentiment. It aims to offset this by boosting export sales and improving efficiency. With a total of eight brands, the company will be able to shift its focus to the more affordable ones in a weaker consumer market.
Padini reported a 25.4% rise in net profit for the six months to December 2008 due to contribution from new stores, rise in same-store sales and better exports. A slowdown is expected in the six months to June 2009 but Padini should still be able to maintain double-digit growth in profits for the financial year ending June 2009.
As at end-2008, the company had net cash and short-term investments of RM41 million. Its net cash position and strong cash flow should enable it to maintain its high dividend payments.
Padini paid dividends of 15 sen per share in FY2008 and could possibly increase this to 17 sen in FY2009, which translates to an attractive gross dividend yield of 6.8%. At RM2.50, the stock is also trading at a low prospective PER of 6.8 times.

Choong Khuat Hock is head of stock research and a partner at Kumpulan Sentiasa Cemerlang Sdn Bhd, a fund management company. KSC may own shares in some of the companies covered by the writer.