• Its nine (9) core brands have strong presences which provides for (i) higher sales of products that are associated with the brands, (ii) better acceptance of new products, (iii) higher ability to increase market share through advertising, and, (iv) stronger resistance to price erosions in the market.
• Given its longer-than-competition track record in Malaysia of 21 years since the opening of its first Seed store, the Group has a more extensive distribution network. Furthermore, we believe that competition is unlikely to mimic the Group’s distribution network or any expansions in its distribution network given that the target markets of the most formidable of competition are confined to the mid-upper income earning urban population. The Group on the other hand, offers value as well as basic merchandise targeting also the mid-lower income population.
• Diversified offerings provide some degree of insulation from demand fluctuations, while tapping into almost every age and income segment of the market.
• Furthermore, the Group caters to only one geographical market according it with a single focus on catering to the preferences of Malaysians. Large international brands, on the other hand, are unlikely to incur additional localisation costs given that Malaysia is a relatively small market in their global portfolio.
• Net cash position allows for funding of expansion plans via internally generated funds. At 31 March 2013, net cash stood at RM166.3m.
• Increasingly efficient and effective management with Return on Equity growing from 11.5% in FY03 to 28% in FY12.
• The Group may be unable to secure the best suppliers in the global market given its relatively small scale compared to global giants like Zara, H&M and Uniqlo. • Possible declines in quality to remain competitive with fast fashion rivals, may alienate some existing customers.
• Frequent and prolonged sales periods may adversely affect the Group as it provides incentive to consumers to withhold their purchases until discounts are offered. This may result in the Group indirectly positioning itself in the same market already being served by the Group value-themed concept store Brands Outlet. Opportunities
• Sabah and Sarawak may be a growth area since penetration there is currently low. In addition, the relatively limited connectively between cities and town will make each area within Sabah and Sarawak a captive market. This may provide for the offloading of older designs, while providing the Group with stable income streams.
• The expansion of the Group’s large-format value-themed stores, Brands Outlet, is another likely growth area given (i) the flexibility of the store’s “value” concept which allows the Group to tailor products mixes according to the locality of the store, and (ii) the strong revenue growth from the operation of the Brands Outlet which registered a 15.2%yoy same store sales growth (SSSG) in FY12 which is similar to the Padini Concept Store’s SSSG of 15.8%yoy and higher than the aggregate SSSG from single-brand stores of 6.6%yoy.
• Entry of reputable foreign brands has made competition stiffer which may decelerate growth in sales and begin thinning margins. We saw this most evidently in the Group’s 2QFY13 numbers following the opening of H&M in Malaysia on 22 Sept 2012 during which growth in revenue decelerated to a low 2.6%yoy while a negative net profit growth was recorded. Net profit margin also declined to 9% from 14% a year ago.