Assignment Padini Holdings Berhad 3-Latest

PADINI HOLDING BERHAD 1.0 COMPANY PROFILE 1.1 Background of the company Padini

is

a

Malaysian-domiciled

investment-holding

company

headquartered

in

HicomGlenmarie Industrial Park, Shah Alam. Incorporated in 1971 as proprietorship under the trade name Hwayo Garments Manufacturers Company, Padini was initially engaged in the manufacture and wholesale of ladies wear. The company subsequently added men’s and children’s lines to its offerings when it established its first three brands from 1975 – 1987. In 1988, Padini discarded its role as wholesaler to take up the role of consignor. Thereafter, the first single-brand store distributing Seed was opened in 1992 in Sungei Wang Plaza, Kuala Lumpur. The company has nine labels in its family of brands and retail in 330 freestanding stores, franchised outlets and consignment counters in Malaysia and around the world. The company’s subsidiaries include Vincci Ladies’ Specialties Centre Sdn. Bhd., which is engaged in dealing of ladies’ shoes and accessories; Padini Corporation Sdn Bhd., Seed Corporation Sdn. Bhd., Yee Fong Hung (Malaysia) SendirianBerhad (Yee Fong Hung) and Padini International Limited, which is engaged in dealing of garments and ancillary products; Padini Dot Com Sdn. Bhd. (Padini Dot Com), which is engaged in provision of management services, and Mikihouse Children’s Wear Sdn. Bhd. (Mikihouse), which is engaged in dealing of children’s garments, maternity wear and accessories. Tizio was introduced to the public with the opening of its first outlet in Mid Valley Megamall in Nov 2012 and subsequently in Paradigm Mall on 23 May 2013. Like almost all of the Group’s Brands, Tizio was developed in-house by, and is registered to the group. Anticipate more presence from Tizio in the coming years as the brand has been slated to become an addition to the group’s portfolio of core brands. On 5 March 1998, the group was listed on the Second Board of Bursa Malaysia Securities Berhad (Bursa) and thereafter, transferred to the Main Board on 4 August 2004. The Main and Second Boards merged on 3 August 2009. Major shareholders of the group as at 8 July 2013 are Pang Chaun Yong with 44% and Skim Amanah Saham Bumiputera with 5.0%.

1.2 organizational charts HAJI SAHID BIN MOHAMED YASIN (CHAIRMAN)

YONG PANG CHAUN (MANAGINGDIRECTOR)

YONG LAI WAH

FOO KEE FATT CHONG CHIN LIN

(DIRECTOR)

CHAN KWAI HENG

(DIRECTOR)

YEAP TIEN CHING

CHEONG CHUNG YET

(DIRECTOR) (DIRECTOR)

(DIRECTOR)

(Organisation chart been done by our group)

1.3 company structure

(DIRECTOR)

2.0 GENERAL ENVIRONMENT ANALYSIS 2.1 Political factor In order to improve consumers spending in the clothing industry, "Mega Carnival Sale" has been implemented by the Malaysian government is to be held 3 times a year. Its main purpose is to promote Malaysia as a "value for money shopping destination". This aggressive approach attracts the tourist to shop at the local apparel outlets, which in turn would increase foreign tourist spending and increases our country's foreign exchange earnings. This would also encourage the Malaysians to shop locally, which would benefit Padini Holdings Bhd in terms of their sales. This has created an opportunity for the domestic companies. However the side effect of such activities would stimulate the domestic economy and increases the number of competitors in the domestic market. Nevertheless, Padini Holdings would still stand out as market leader. Through ETP projects and initiatives, the Malaysian Government plans to boost Malaysians‟ income level. Padini should be able to realize on the growing of Malaysian affluent as many can afford to purchase higher priced items besides the value products that the group offers. The incremental of wealthy and thriving consumer base has allowed brands such as Padini, Padini Authentic and Seed to obtain higher revenue. The group can take this advantage to strengthen its single brand stores into multi- brand concept stores, where consumers gain access to all of Padini‟s in - house brand collections

2.2 Economic factor Malaysia's economic growth is to be has been unstable fluctuating from -1.5 to -2.6 from 2008 to 2010. The highest growth was during the period of March to September 2009 which increases from –7, 8 to 5.7. The economic growth is expected to be due to the domestic market with growth in the private sector. The private sector makes up the majority of the Malaysian economy, with private consumption accounting for nearly 44% of GDP. "Love Malaysia, Buy Malaysia" campaign was launched to by the government to get Malaysians to support domestic market and take holidays in local tourist sites. The government also subsequently launched a national campaign on wise spending, with the aim to educate consumers on the importance of domestic demand on the GDP growth and economic recovery as a whole.

2.3 Social factor Malaysian is classified as an upper middle-income country, and considered as one of the most developed among the developing countries. Middle income households defined as those earning between RM1, 500 and RM3, 500 per month, and has increased from 32.3% of total household population in 1995 to 37% in 1999. The low-income group, categorized by household income of up to RM1, 500 per month, spends a proportion of this amount on food. Meanwhile, the high and middle income households spend most of their money at hypermarkets. 3.4% of their income is spent on clothing and foot wear. Malaysia's consumers' lifestyle has been changing for the better due to the rise in education levels. High profile retailers as well as global mass media have shaped consumers’ buying behaviour, resulting in the Malaysians being more westernized. The Malaysian's life leisure life revolves around trendy shopping malls. Therefore Padini Holdings Bhd has to be more update with the latest trends. They have to advertise and keep the consumers informed and reminded that they still exist and provide the customers with quality and trendy clothes.

2.4 Technological factor With the Internet and e-commerce, retailers can now sell their products online and deliver it to customers on their door-step efficiently within a timely manner. It can make customers' life more convenient as they do not need to get their house to go purchase a product in the hypermarket and making the purchase at the comfort of their own home. Furthermore, retailers can also sell their products to the overseas market without the need to open a physical store in the foreign country. This helps Padini Holdings to earn more profit using online intermediaries and cut costs by not establishing new stores in certain areas.

2.5 Environment factor Environmental changes have a major impact on virtually all products, services, markets, and customers. In Padini, environmental factors affect a lot in trends, which customer nowadays up to date with fashions. In addition, new trends are creating a different type of consumer and, consequently, need for a different products, services and strategies. So, Padini is in line because they provide variety of products to satisfy the need of customer. Environment factor

such as weather also affected the Padini’s sales where generally fluctuate with seasonal festivities such as Hari Raya, Christmas and the Chinese Lunar New Year. Nationwide sales programs such as the Malaysian Mega-Sale and Merdeka Sale are also potent revenue drivers. But, during quiter periods with no festivities (typically every 4Q of Padini’s FY or Apr-Jun quarter), the group sees comparatively lower sales figures. However, this is a known characteristic of the retail industry and is not expected to have substantial impact on Padini’s overall financial performance.

2.6 Legal factor Padini has a large product offering for its customers. It offers luxury and high fashion items that cater to upmarket consumers (Seed, Padini, Vincci+),affordable, core value garments for the lower to middle income earners (Brands Outlets, Vincci, Padini Authentics),and its own children’s and maternity wear (Miki). It recently started to offer children’s wear under Seed and Padini. Therefore, these brands has been credited by the Association of Accredited Advertising Agencies of Malaysia (4 A’s) incollaboration with Interbrand – the world’s leading brand consultant to be the Malaysia’s 30 most valuable brands.

3.0 TASK ENVIRONMENT ANALYSIS 3.1 Porter 5 Forces Analysis 1. Threat of new entrants – high.Malaysia is becoming an important expansion base for Western retailers. Even as big retail brands and labels focus their attentions on the emerging markets of China, India or even our ASEAN neighbours, they too have seen it fit to establish a presence in Malaysia as well. Increasingly, Malaysia will see more international retailers venturing into the market directly as opposed to via the traditional gateways of Hong Kong and Singapore. In the past year itself, there has been an influx of international brands, which compete on the same playing field as Padini, the most recent being Japanese behemoth Uniqlo and Swedish fashion retailer H&M, which have opened their flagship stores in the Golden Triangle. We believe that given the growing size of the pot, the main barrier to entry would be with regards to the prime retail space which is getting scarce. 2. Bargaining power of buyers – high. The rising income levels, better education and greater access to a variety of brands and labels have resulted in a class of consumers more sophisticated in their needs and preferences. Where customer loyalty is of the utmost importance, retailers have strived to attain superior customer responsiveness by employing various methods of advertisements and promotions, loyalty programmes, as well as to increase customer’s perceived value of a brand. Brands catering to this expanding group of consumers have become numerous but more often than not, these brands pay more attention to the pricing strategies than to the perceived quality of the products under their brands. As a result, many brands fail rather than thrive. 3. Bargaining power of suppliers – low. As with the trend in the fashion retail industry, Padini designs its garments while outsourcing the manufacturing operations to OEM manufacturers. Knitwear and graphic Ts are manufactured locally while the more complex woven items are sourced from China and Sri Lanka. With the advent of the global slowdown, the garment manufacturing industry in China has become saturated and oversupply issues have more than mitigated the effects of minimum wage rebasing. Thus far, bargaining power of suppliers has remained low, and as a result, large scale Chinese manufacturers who had previously shunned the small to mid-sized fashion retailers have reopened their doors to Padini.

4. Threat of substitute products – medium. Padini’s products cater to a wide range of audiences, the more pronounced differences being the styles and pricing of the brands they carry. The SEED and Padini brands are trendier while the PDI and Vincci brands are more neutral. The brands outlet’s products, on the other hand, houses lesser-known value-for-money labels, which include off-season and surplus branded items. We believe that Padini’s differentiated products as well as its flexibility of varying its merchandise mix provides the group with some degree of immunity, though it is noteworthy that the Vincci accessories are not generally designed in-house, which means these products no longer retain their unique qualities. In this situation, these ranges of products runs the risk of attracting the interest of supplies eager to broaden their distribution as well as competitive retailers anxious to boost their own sales. 5. Competitive rivalry within the industry – high. The garment retail industry is by nature, one of the most competitive areas of commerce. Competition is particularly apparent where there are numerous other brands, which operate at the same locations as Padini. These brands compete not only for market share and floor space, but also for front line retail staff, which is becoming increasingly scarce. The increased demand for staff required to run retail operations extends beyond fashion retailing, and the current rapid growth in retail outlets of all kinds has caused high turnover rates for front line staff, which has in turn made recruitment costly, time-consuming and often unproductive. Management has envisaged that the coming years will see the situation deteriorate further if nothing is done to radically after the conditions of demand and supply of labour in this industry.

4.0 SWOT SWOT TABLE: PADINI HOLDINGS BERHAD Internal: Strengths

Internal: Weaknesses

S1

Leading brand in Malaysia

W1

Unstable profits

S2

Many retail outlets

W2

No online shopping

S3

Market leadership

S4

Promising quality

S5

Product for all ages

External: Opportunities

External: Threats

O1 Expands their business

T1

New to market

O2 Prioritize local companies

T2

Increase competition

O3 Open more branches

T3

No celebrity endorsement

O4 Earn more profit

4.1.1 Strengths 1. Leading brand in Malaysia PADINI is a leading brand in Malaysia. There are wide range in style and pricing of the brands that PADINI carry. For examples, PADINI carries SEED, Vincci, Mikihouse and etc. the products not only trendy but also neutral which is suitable for all type of consumers. 2. Many retail outlets There are in total of 330 retail outlets in Malaysia and around the world for Padini Holding Berhad. With many retail outlets, PADINI is making sure that they are unbeatable for their competitors.

3. Market leadership PADINI is among the well-known brand established since 1971 in Malaysia. It strategically located factories and warehouses ensure wide market coverage in Malaysia. 4. Promising quality PADINI ensure the quality of their product is in higher aspect for their brand and inhouse brands under them. 5. Products for all ages With in-house brands under PADINI, they ensure that their product is suitable for all ages of consumers.

4.1.2 Weaknesses 1. Unstable profits In retailer business, the profit is unstable. The consumers are depending on the season. In Malaysia, the profit will be at the highest peak when there is festiveseason. For example: Chinese New Year. 2. No online shopping Another weakness for PADINI is no online shopping. For customer, they can only buy Padini’s product in stores which is not a very convenience for the customer. It is because, not the entire customer is in the city and near to shopping complex. 3. Public perception (low quality) In retailer business, the perception of public in term of fabric is in a low quality.

5.0 TOWS TOWS TABLE: PADINI HOLDINGS BERHAD INTERNAL FACTORS

Strengths – S S1

Leading

Weaknesses – W brand

in W1

Malaysia

EXTERNAL FACTORS

S2

Many retail outlets

S3

Market leadership

S4

Promising quality

S5

Product for all ages

W2

Unstable profits No online shopping

Opportunities – O

SO Strategy

O1

Expands their business

(s3 + o1)

(w2 + o3)

O2

Prioritize local companies

Using the power as market

Placing more branches to

O3

Open more branches

leadership to expand their

cover loss of potential online

O4

Earn more profit

business (horizontal)

customer (market dev)

WO Strategy

Threats – T

ST Strategy

WT Strategy

T1

New to market

(s1 + t3)

(w1 + t2)

T2

Increase competition

T3

No celebrity endorsement

STRATEGIC DIRECTION 5.1.1 SO Strategy: Using the power as market leadership to expand their business. As a market leader in the retail business, PADINI has a huge power and opportunity to expand their business to the next level. With this, PADINI has the power to control over 5.1.2 WO Strategy: Placing more branches to cover loss of potential online customer. PADINI is a well-known brand in retail business which is clothing, accessories, shoes, children’s clothing and etc. within this areas of business, potential customers is more interested in window shopping rather than online shopping. It is a good strategy for PADINI to open more branches in order to attract potential customer on self-satisfaction. 5.1.3 ST Strategy:

Even though without the celebrity endorsement, PADINI still manage to be the lead brand in Malaysia. That’s mean; the power of the brand itself is powerful enough to cover the treats in the business. To strengthen the brand, PADINI should consider offering an endorsement to the icon celebrity. 5.1.4 WT Strategy:

6.0 RATIO ANALYSIS 6.1 Ratio of the company for 2011 and 2012 PROFITIBILITY RATIO

2011

Return on Total Assets (ROA) = Net Income Total Asset

Return on Equity (ROE) =

Net Income

Total Stockholders Equity

Return on Investment (ROI) = Net profit After tax and interest Total Assets Earning Per Share =

Net Income

Number of shares of Common stock outstanding

= 75,694

2012 = 96,001

444,339

482,305

= 0.17

= 0.20

= 75,694

= 96,001

340,109

282,677

= 0.22

= 0.34

= 75,694

= 96,001

444,339

482,305

= 0.17

= 0.20

= 75,694

= 96,001

131,582 = 0.58

657,910 = 0.15

6.2 Analysis of ratio Ratio analysis is used to evaluate relationships among financial statement items. The ratios are used to identify trends over time for one company or to compare two or more companies at one point in time. Return on total Assets (ROA), is a financial ratio that shows the percentage of profit that a company earns in relation to its overall resources (total assets). Return on assets is a key profitability ratio which measures the amount of profit made by a company per dollar of its assets. It shows the company's ability to generate profits before leverage, rather than by using leverage. ROA measurements include all of a company's assets – including those which arise from liabilities to creditors as well as those which arise from contributions by investors. So, ROA gives an idea as to how efficiently management use company assets to generate profit, but is usually of less interest to shareholders. For Return on Equity (ROE), is the amount of net income returned as a percentage of shareholders equity. It reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. ROE is one of the most important financial ratios and profitability metrics. It is often said to be the ultimate ratio or the ‘mother

of all ratios’ that can be obtained from a company’s financial statement. It measures how profitable a company is for the owner of the investment, and how profitably a company employs its equity. Furthermore, The higher the ROE the better. But a higher ROE does not necessarily mean better financial performance of the company. For stable economics, ROEs more than 12-15% are considered desirable. But the ratio strongly depends on many factors such as industry, economic environment (inflation, macroeconomic risks, etc.).In Padini Holding Berhad year 2012 is shown the better than 2011 because have a higher ratio. Next, Return on investment (ROI) for the company is higher in 2012 that is 0.20 than in 2011 is 0.17. It indicated that investment gains compare favourably to investment costs. Return on investment (ROI) is performance measure used to evaluate the efficiency of investment. It compares the magnitude and timing of gains from investment directly to the magnitude and timing of investment costs. It is one of most commonly used approaches for evaluating the financial consequences of business investments, decisions, or actions. If an investment has a positive ROI and there are no other opportunities with a higher ROI, then the investment should be undertaken. Lastly Earning per share ratio, is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-toearnings valuation ratio. In addition, Earning per share is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. Ratio for 2012 is higher than 2011 in Padini Holding Berhad indicated that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures. The conclusions is, for the company Padini Holding Berhad performance are more better and increases year by year as we can see the ratio in 2012 given a better result than 2011. It shown that a company's ability to meet short-term debt obligations, company's ability to meet its short-term obligations using its most liquid assets, company's ability to repay its obligations, how effectively and efficiently a company is using its fixed assets to generate revenues, how efficiently a company uses its resources, materials, and labour, company's ability to generate profits before leverage, and more efficient at using its capital to generate income.

PERCENT(%) 0.205 0.2 0.195 0.19 0.185 0.18 0.175 0.17 0.165 0.16 0.155

PERCENT (%) 0.4 0.35 0.3 0.25

PERCENT(%)

0.2

PERCENT (%)

0.15 0.1 0.05 0 2011

2012

2011

2012

GRAPH 1: Comparison between 2011

GRAPH 2: Comparison between 2011

and 2012 Return on Asset ratio(ROA).

and 2012 Return on Equity Ratio(ROE)

PERCENT(%) 0.205 0.2 0.195 0.19 0.185 0.18 0.175 0.17 0.165 0.16 0.155

PERCENT(%) 0.7 0.6 0.5 0.4

PERCENT(%)

PERCENT(%)

0.3 0.2 0.1 0

2011

2012

GRAPH 3: Comparison between 2011 and 2012 Return on Investment Ratio(ROI).

2011

2012

GRAPH 4: Comparison between 2011 and 2012 Earning Per Share Ratio(EPS).

LIQUIDITY RATIO Current Ratio =

Current assets Current Liabilities

Quick Ratio =

2011

2012

= 349,754

= 380,266

137,947

120,393

= 2.54

= 3.16

Current Asset – Inventory

= 349,754 – 170,955

= 380,266 – 192,285

Current Liabilities

137,947

120,393

= 1.30

= 1.56

Current Ratio for 2012 is higher than 2011 that is 3.16 different from 2011 that is 2.54. Current ratio indicates that a company's ability to meet short-term debt obligations. The current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months. In addition, the current ratio can also give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. The higher the ratio, the more liquid the company is. Quick Ratio also shown the same where in 2012 the ratio is higher than in 2011. It indicates a measure of a company's ability to meet its short-term obligations using its most liquid assets .Quick ratio is viewed as a sign of a company's financial strength or weakness; it gives information about a company’s short term liquidity. The ratio tells creditors how much of the company's short term debt can be met by selling all the company's liquid assets at very short. So,the higher the quick ratio, the better the position of the company. The commonly acceptable current ratio is 1.

LEVERAGE RATIO Debt to

=

total asset

2011

Total debt

= 161,662

= 142,196

Total Asset

444,339

482,305

ratio

Debt to

=

Total debt

Equity ratio

Total stockholders equity

LTD to

= Long Term Debt

Equity ratio

Total stockholders equity

Times interest Earned ratio

2012

= EBIT Total interest charged

Inventory turnover

=

Sales

Inventory

Fixed Asset Turnover

=

Sales Fixed Asset

Total Asset Turnover

= Sales Total Asset

= 0.36

= 0.29

= 161,662

= 142,196

340,109

282,677

= 0.48

= 0.50

= 23,715

= 21,803

340,109

282,677

= 0.07

= 0.08

= 105,057

= 130,649

1,573

2,328

= 66.79

= 56.12

= 568,476

= 723,411

170,955

192,285

= 3.33

= 3.76

= 568,476

= 723,411

94,585

102,039

= 6.01

= 5.57

= 568,476

= 723,411

444,339

482,305

= 1.28

= 1.18

Debt to equity ratio is a financial ratio indicating the relative proportion of entity's equity and debt used to finance an entity's assets. This ratio is also known as financial leverage. In addition Debt-to-equity ratio is the key financial ratio and is used as a standard for judging a company's financial standing. It is also a measure of a company's ability to repay its obligations. Lenders and investors usually prefer low debt-to-equity ratios because their interests are better protected in the event of a business decline. Thus, companies with high

debt-to-equity ratios may not be able to attract additional lending capital. So, 2012 is better than 2011 because have a lower amount of ratio that is 0.29. An inventory turnover ratio showing how many times a company's inventory is sold and replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall. So, ratio in 2012 is higher than 2011 it indicated that 2011 is better for a company’s inventory is sold and replaced over a period. Fixed asset turnover ratio compares the sales revenue a company to its fixed assets. This ratio tells us how effectively and efficiently a company is using its fixed assets to generate revenues. This ratio indicates the productivity of fixed assets in generating revenues. If a company has a high fixed asset turnover ratio, it shows that the company is efficient at managing its fixed assets. Fixed assets are important because they usually represent the largest component of total assets. So, in 2011 the company have a higher ratio than 2012 it indicates that in 2011 the company is more efficient at managing its fixed assets.

PADINI’S PORTER FIVE FORCES Bargaining Power of Buyer – High -

Spending behaviour is affected by

Threat of New Entrance – High -

distribution channels as most of the first tier

their income level Depends on economic condition against Income level Aware of consumer rights Low swithching cost to other similar brands.

-

New entrants have limited access to

retail malls are fully occupied. -

-

Difficult to build brand loyalty and delivering quality as Malaysian consumer are less pricesensitive. Issues with front-line service recruitment as small local brands can’t compete with mega firm and foreight brands on talents recruitment

Rivalry within the industry – moderate -

Rising revenue from past 4 years due to Padini has successfully captured the niche and grow its business consistenly due to rising affluence among consumers.

-

-

Growing of Brands Outlet had successfully captured the mass market but growing significantly in PBT form 1% to 17% in year 2011. More foreign brands penerated to Malaysia last 4 years .

Bargaining Power of Supplier – Moderate -

-

-

Padini control the design of its apparel

Threat of Substitute – Low -

Apparel industry is a saturated and

& shoes while outsource its

matured market where it is basic

manufacturing services to 10 OEM

needs for the living

companies

-

Shoes and Graphical T-shirt are manufactured in Malaysia OEM while jeans and slack are sourced form china Planning to outsource its future apparel. Further reduce supplier’s bargaining power.

-

Threats of e-commerce seen prevaling as online shopping trendskicks in over the past 10 years but pricing relatively low on its product due to low operation cost. Padini counter-attack by ramping up its facebook fanpage wih latest designs at discounted rate based on term and conditions. It has 227,000 fans up to date.