Broker: Maybank Investment Bank Berhad
Date of Report: June 3, 2025

Padini Holdings: Attractive Valuations and Resilient Growth Prospects for 2025 and Beyond

Overview: Padini Holdings Positioned for Growth with Undemanding Valuations

Padini Holdings Berhad (PAD MK), a leading player in Malaysia’s consumer discretionary sector, maintains a positive outlook as it heads into FY26, supported by cost efficiency, favorable currency movements, and a robust business model that appeals to a wide consumer base. With a current share price of MYR2.10 and a target price of MYR2.85 (+40%), Padini presents an attractive value proposition for investors, trading at just 11x FY26E PER and offering an estimated dividend yield of approximately 4%.

Key Highlights and Investment Thesis

• Current Valuation: Padini is trading at 11x FY26 PER, significantly below its historical mean, with a strong potential upside to the target price of MYR2.85.
• Dividend Yield: Offers a consistent yield of around 4%, underpinned by solid free cash flow and a prudent payout ratio.
• Mass Market Appeal: Padini’s affordable price point and broad product range position it to benefit from both down-trading consumer trends and increases in disposable income.
• FX Tailwinds: The appreciation of the Malaysian Ringgit (MYR) against the Chinese Yuan (CNY) is expected to reduce input costs in future quarters, cushioning margins during seasonally soft periods.
• Resilience to External Shocks: In scenarios such as escalating US-China trade tensions, Padini could strengthen its negotiating power with suppliers.

Operational and Financial Performance: In-Depth Analysis

Strong Same Store Sales Growth (SSSG) and Margin Expansion

• 3QFY25 SSSG: +6% YoY, driven by Chinese New Year (CNY) and Hari Raya Aidilfitri festive sales.
• 9MFY25 SSSG: +1% YoY.
• Gross Profit Margin: Improved to 41% (from 35% in 3QFY24), supported by higher sales of active-wear and new intellectual property (IP)-related products.

FX Benefits on the Horizon

• Padini typically holds 4-6 months of inventory. As such, the positive impact from MYR appreciation against CNY is expected to materialize in 4QFY25 and beyond, once higher-cost inventory cycles out.
• More than 50% of products are sourced from China, while only 11% are sourced locally, highlighting the importance of currency movements on cost structure.

Financial Summary Table

Balance Sheet and Cash Flow Strength

• Balance Sheet: Padini maintains a net cash position, with cash and short-term investments projected to rise from MYR821m in FY24A to MYR1,319m by FY27E. No long-term debt is anticipated over the forecast period.
• Free Cash Flow: FCF yield is robust, projected above 11% from FY25E onwards. Dividend cover remains strong at over 2x across the forecast horizon.
• Capex: Capital expenditure is steady at about 2-3% of revenue, ensuring prudent investments in operations and expansion.

ESG Performance: Progress and Gaps

Environmental Initiatives

• Sustainability Alignment: Padini’s plans are aligned with the United Nations Global Sustainable Development Agenda.
• Packaging: 99% of waste derives from product packaging. All stores use biodegradable plastic bags and recycled paper bags to minimize landfill impact. A ‘No Plastic Bag’ campaign is ongoing in stores.
• Carbon Emissions: Solar systems installed at head offices and warehouses have reduced electricity consumption by 45% since 2018.
• Distribution: Logistics are outsourced, but route planning is optimized to reduce carbon footprint.

Governance Practices

• Board Composition: 11 members with 5 independent non-executive and 6 non-independent executive directors. Independent representation is at 45%, with a target to reach 50% within two years.
• Gender Diversity: Male:female ratio on the board is 55:45, exceeding the recommended industry practice of over 33% female representation.
• Chairman and CEO Separation: The roles are held by different individuals.
• Auditor: Audited by BDO PLT since 2013.

Social Responsibility

• Workforce: 2,622 employees across Malaysia, Cambodia, and Thailand; about 62% are female.
• Supply Chain: Strict supplier vetting to avoid forced or child labor, with periodic factory visits to verify conditions.
• Local Hiring: Commitment to 100% domestic employment across operations.
• Training and Development: Annual internal training and sponsorships for external study/training are offered.
• CSR: MYR0.6m cash donated in FY22 to support vulnerable groups.

ESG Scoring Summary

• Overall ESG Score: 40 (below average, with average being 50).
• Transparency: Emission data and long-term ESG commitments remain limited; senior management salaries are not tied to ESG targets.
• Targets: Achieved a 22% reduction in electricity consumption (target: 20% by 2030).

Key Risks and Considerations

• Fluctuations in sales, pricing, and operational costs could impact earnings.
• Heightened competition and weak consumer sentiment are ongoing concerns.
• ESG performance, while progressing, still lacks full transparency and long-term targets.

Technical and Historical Performance

• Share Price: MYR2.10, with a 52-week range of MYR1.45–2.57.
• Market Capitalization: MYR2.1B (USD487M).
• Major Shareholders: Yong Pang Chaun Holdings Sdn Bhd (43.7%), Employees Provident Fund Board (8.3%), Kumpulan Wang Persaraan Diperbadankan (7.1%).
• 12-Month Price Target: MYR2.85 (+40%).

Padini’s Outlook: Conclusion and Investment Rationale

With resilient sales growth, expanding profit margins, and a sound capital structure, Padini Holdings is well-positioned to capture both the value and volume-driven segments of Malaysia’s fashion retail market. The group’s ability to buffer against currency and macroeconomic headwinds, supported by operational efficiency and a flexible business model, underpins the continued “BUY” recommendation with a target price of MYR2.85. As Padini further develops its ESG framework and capitalizes on favorable FX trends, investors can anticipate both steady returns and long-term value creation from this Malaysian retail stalwart.