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Wednesday January 30, 2013
PADINI HOLDINGS BHD
By Kenanga Research
Market perform (initiating coverage)
Target price: RM1.84
WE are initiating coverage on Padini Holdings Bhd with a market perform call and a target price of RM1.84, which is based on a targeted price-earnings ratio (PER) of 11.2 times on the company's FY13 earnings per share (EPS) of 16.4 sen.
Padini has a strong foothold in the domestic market with a vast retail network of nine labels under its portfolio, namely Padini, Padini Authentics, Pdi, P&co, Seed, Vincci, Vincci+, Vincci Accessories and Miki Kids. The group has grown its retail presence over the years to 48 single Brands Stores, 26 Padini Concept Stores, 20 Brands Outlets, 155 consignment counters, 15 franchises in the domestic market and over 80 franchises and dealers in the international arena.
Padini has a strong track record of revenue and earnings growth. It has a 5-year revenue and net profit compounded annual growth rate (CAGR) of 18% and 24.8% respectively, driven primarily by the aggressive floor space expansion of its high-growth Brands Outlet and Padini Concept Stores.
In just five years, Padini has almost tripled its floor space to 699,136 sq ft, with a net addition of 129,600 sq in the past year alone.
With five more stores scheduled to open in early financial year ending June 30, 2014 (FY14), much of the revenue growth in the interim will come mainly from the gradual maturing of its outlets in new malls, which should then generate a higher per square foot sales.
The management has guided that this would be achieved via attracting customer spending by tweaking its store merchandise mix and the perceived value and quality of Padini's offerings, improving the design to delivery of its products to keep up with the ever changing consumer trends and preferences and continuously refurbishing its existing stores to attract customers.
We expect Padini to register a revenue of RM802.9mil to RM927.1mil for FY13-FY14, which translate into revenue growth rates of 11%-15.5% for the two years.
Padini's operating expenses as a percentage of revenue has been on a declining trend over the past four years as the group benefited from the economies of scale of more outlet openings.
In addition, the revenue per square foot for Padini's single brand stores, Brands Outlet stores and Padini Concept stores have been increasing, reflecting the management's efficient use of floor space and probably better product mix.
As a consequence, we expect the net margins to improve by 13 to 21 basis points in FY13-FY14 estimates.
Although Padini does not have a formal dividend policy in place, the group has been paying out 35%-49% of its earnings in the past five years.
We believe that with the minimal capital expenditure plans expected for FY13-FY14 estimates, it is likely that Padini will adopt a higher dividend payout ahead.
Based on our FY13-FY14 net profit estimates of RM107.9mil to RM120.5mil, we expect the company to distribute a dividend per share of 8 sen to 9 sen, translating into attractive dividend yields of 4.4%-4.9%.
GAMING SECTOR (Numbers forecast operators)
By Hong Leong Investment Bank Research
WE noticed that Pan Malaysian Pools Sdn Bhd (PMP) has silently launched its second jackpot game, 3D+1D Jackpot (also known as 4D Jackpot), in late November last year.
We were quite surprised by this finding as numbers forecast operators (NFOs) usually informs the punters whenever they launch a new game.
The launch of this game was much later from what we have earlier expected, when they launched 6D Jackpot instead in July 2012. The prize structure of the game is the same as Berjaya Sports Toto Bhd (BToto) and Magnum.
However, the poor sales/draw in PMP's 4D Jackpot game surprised us as we foresee sales to be encouraging, similar to what BToto have performed earlier. Magnum and BToto collected a sales of RM725,000 and RM981,000 respectively, but PMP only managed to reach a sales of RM311,000 on its first draw. More draw days were also needed to reach a sales of more than RM1mil, where both the pioneers exceeded RM1mil sales on its second draw day.
Given such scenario, we opine that PMP's market share under the 4D Jackpot segment would not climb up so soon, or will take time to reach the meeting point with its other two competitors. Up till latest draw date, its market share sits at only 14.8% vs. 42.3% and 42.9% for Magnum and BToto respectively.
Hence, we believe BToto and Magnum will alternately be the market leader for now.
Upon the launch of PMP's 4D Jackpot, sales/draw for the other two players was not affected at all. The number of draws taken to reach a prize payout of RM10mil before and after PMP's 4D Jackpot did not deviate much for both BToto and Magnum, hence it is safe to say that there is minimal to no cannibalisation on the remaining players.
Correspondingly, we are maintaining our view that PMP's 4D Jackpot will create “new” market segment on its own, especially from the younger generation as winning the jackpot would be a life-changing experience due to the attractive prizes.
Thus, we believe this will enlarge the industry market size at the same time, bringing more positive impact to the industry as a whole in the-long term.
Risks include higher-than-expected prize payout ratio, BToto's 4D Jackpot to lose market share to Magnum and PMP and hike in gaming tax and/or pool betting duty.
Maintain neutral on the sector. For BToto, maintain hold with target price of RM4.64 based on sums of parts valuation.
Malaysia Airports Holdings Bhd
By Maybank Investment Bank Research
Target price: RM6.60
WE look forward to a promising 2013 with robust traffic growth thanks to sustained economic growth and high capacity deployment plans by the domestic airlines.
We are also excited with the opening of KLIA2 (officially June 28) as it opens platforms for many new revenue streams. Maintain buy, with a lower discounted cash flow-based target price of RM6.60 after adjusting for higher number of shares and other cost items.
There was a surfeit of accounting adjustments and rise in cost items that had weighed down on 2012's performance. This had masked the increase in passenger service charges (PSC) and landing charges imposed in Nov 2011 which greatly aids to boost revenues. The underlying business remains healthy and churns strong cashflow, as demonstrated by the 39% year-on-year growth in nine months ended Sept 31, 2012 operating cashflow (OCF). There will be a provision of RM63mil for Male airport discontinuation.
Traffic growth is expected to accelerate to 10% in 2013, higher than 2012's estimate 4.7% growth. Sustained economic growth, record number of firm aircraft deployment and Malaysian Airlines reigniting its capacity growth are the main drivers. Furthermore, the rise of the third force, Malindo Airways, is expected to spark a price war among the airlines and help churn strong traffic growth.
The Prime Minister has requested for KLIA2 to be launched on June 28, 2013 the same opening date for KLIA launch 15 years ago.
However, the internal target for handover from contractors to MAHB remains on April 30. The opening of KLIA2 was originally targeted for May. An official launch on June 28, if it is without a soft launch in May, would mean a two month delay this will reduce 2013 revenues and additional costs.
We have lowered our financial year ending Dec 31, 1013 (FY13) to FY14 forecasts by 12.9% and 11.6% respectively to take into account an enlarged share capital base due to the dividend reinvestment program, new KLIA2 start date and other cost adjustments.
This has reduced our DCF valuation, of which our target price has also been adjusted accordingly.
AXIATA GROUP BHD
By Public Investment Bank Research
Target price: RM6.61
ACCORDING to a Bloomberg report last Friday, Axiata confirmed that it had submitted an expression of interest to Myanmar's Communications and Information Technology Ministry for a telecommunications (telco) license.
Though capital expenditure (capex) is expected to be rather hefty, we are positive on Axiata's next venture in Asia after the recent consolidation exercise in Cambodia. From a valuation standpoint however, our neutral call is reiterated with unchanged target price of RM6.61.
The 64 million populated country is seeing a process of democratic and economic reform after enduring decades-long of civil war. There are 6.4 million mobile subscribers, representing a 9% mobile penetration rate while fixed-line penetration rate is at 1% or 604,000 users.
There are about 678,000 mobile internet subscribers. The country is coming up with a new telco law, which is said to have duplicated Malaysia's Communications & Multimedia Act (CMA) (1998) as its new law and an independent regulator will be established by 2015.
It also aims to increase its mobile penetration rate from its current negligible levels to at least 75% by the end of 2015.
There will be two telecoms licenses, which have a concession of 20 years with an option of renewal, to be issued by the middle of this year.
Alongside Axiata, telcos that are rumoured to have joined the bidding race are Singapore's ST Telemedia, Telenor ASA as well as other telco players from China, Euro and Japan.
The winner of the telco license would face a couple of heavy tasks in Myanmar, namely the high cost of SIM cards, limited telecoms infrastructure and lack of clarity in the government's approach on spectrum allocation, interconnection, tariff regulation, network ownership, infrastructure sharing and deployment.
A study released by Deloitte Consulting stressed that it required “thousands of kilometres” of fibre infrastructure and in excess of 15,000 towers to be installed by 2015 in order to meet the targeted 75% penetration levels, which could result in an estimated capex of US$4bil (RM12bil).
The telco market is also weighted down by expensive SIM cards, prices of which are set by the ministry, costing about US$150-US$350 (RM465-RM1,085) for each card in a country with a capita annual income of roughly US$379 (RM1,174). This is in stark contrast to a cost of US$4 (RM12.40) in neighbouring Thailand, where average annual income is 10 times higher.
The Myanmar government is currently investigating a former minister and some high ranking officials from the telco ministry for corruption.
It is also the first investigation of a cabinet minister since President Thein Sein's government came to power in 2011 after decades of military rule. It was allegedly that they were involved in “corruption” and “cronyism” and the probe is being carried out by the Home Affairs Ministry.
Majority has lauded the move and sees it as a good start in clearing up the long languishing sector, which could potentially attract a wave of foreign investments into the country.
We think the hefty investment in Myanmar will neither affect its targeted dividend payout of 65% nor require any fund raising given its strong cash pile of RM8.6bil and current net debt to earnings before interest, tax, depreciation and amortisation of 0.6 times coupled with the expectation of declining capex in future.
In addition, Axiata can try to collaborate with local telco players and also another foreign license holder in expanding the network coverage, which will help reduce its capex spending.
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