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“It would be great if local brands like Padini manage to
maintain its revenue and profit post-GST as consumers
are still adapting to the rising cost of living after
the introduction of GST,” Ng told digitaledge DAILY.
Although Ng noted that Padini had been working hard to
maintain its market share by having sales more often and
going into the lower-middle class market through its
Brands Outlet stores, he expects Padini’s post-GST
results to be weak.
In its third quarter ended March 31, 2015 (3QFY15),
Padini recorded a stronger revenue of RM64.8 million, an
increase of 29.6%, which was attributable to the longer
Chinese New Year shopping season, and boosted by the
additional seven Brands Outlet Stores and six Padini
Concept Stores that opened after the end of 3QFY14.
However, its gross margin
for 3QFY15 had fallen by about 1.8% year-on-year due
primarily to the group’s focus on delivering value and
strengthening its position in the sub-sector that it
operates.
Ng said Padini’s dividend
yield made the stock attractive – according to The Edge
Research, Padini’s 12-month rolling dividend yield stood
at 7.24% – but he doubted it would be sustainable if its
revenue and profit suffer in coming months. As it is,
Retail Group Malaysia had cut its retail sales growth
forecast for 2015 for the third time to 4% from 4.9% as
consumers held back their spending on higher cost of
living, softer ringgit and higher cost of doing
business.
But another analyst
attached to a local broking firm believes Padini remains
attractive, not only due to its high dividend yield, but
also its strong balance sheet and undervalued price. It
closed at RM1.33 last Friday, down 32.1% from RM1.96 on
Aug 7 last year.
Still, he admits that
local retail brands will continue to lose their market
share to foreign brands in the long run as the price
differences between local and foreign-branded apparels
are not big.
“To stay competitive,
[local] retail players need larger economies of scale,
to be more efficient with their operation and cut down
wastage. Plus, they need overseas expansion,” the
analyst said.
On the other hand, Ng said
foreign-brand retailers Wing Tai (fundamental: 1.05;
valuation: 2.4) and Jerasia Capital (fundamental: 0.8;
valuation:1.7) have been gaining traction among
investors of late, which saw an increase in their
trading volumes.
Ng prefers Wing Tai as he
believes the addition of the Uniqlo brand will boost the
company’s earnings.
Last Friday, Uniqlo –
which currently has 25 stores throughout Malaysia –
announced it would be opening seven more stores
nationwide between September and November, which will
also see it venturing into east Malaysia.
These stores will be
located in the Klang Valley (The Curve), Perak (Aeon
Klebang), Kedah (Aman Sentral), Sabah (Imago KK Times
Square and Suria Sabah), and Sarawak (The Spring Mall
and Vivacity Megamall).
Ng said Wing Tai’s
operating profit from the retail division might have
slipped to RM19.4 million in 3QFY15 from RM23.6 million
in 3QFY14 due to a softer market and the weakening of
the ringgit, he sees the group performing well in the
long run.
Wing Tai closed at RM1.19
last Friday for a market capitalisation of RM571.88
million. It’s trading at a price-earnings ratio (PER) of
5.31 times. Year-to-date, the stock has fallen some
61.62% from RM1.58.
Jerasia, meanwhile, almost
doubled to 88 sen last Friday from around 46 sen on Jan
2, and is trading at a PER of 7.16 times, with a market
value of RM72.2 million.
This is after it posted a
record net profit of RM11.93 million for its financial
year ended March 31, 2015 – up 137.4% from RM5.03
million a year ago – with its retail segment
contributing RM6.36 million (FY14: RM4.74 million),
mainly due to pre-GST sales.
“I’d say the stock
(Jerasia) is traded at fair value now, [it] is not as
attractive as Wing Tai now,” Ng added. – The Edge
Markets, August 10, 2015.
Source:
The Star Online
, dated
08/08/2015 |