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 FOO KEE FATT YEAP TIEN

WAH CHONG CHIN CHAN KWAI CHING CHEONG
LIN (DIRECTOR) HENG CHUNG YET
(DIRECTOR) (DIRECTOR)
(DIRECTOR) (DIRECTOR) (DIRECTOR)

(Organisation chart been done by our group)

1.3 company structure

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 note-
worthy 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 in-
house 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 Weaknesses – W

S1 Leading brand in W1 Unstable profits

Malaysia W2 No online shopping
S2 Many retail outlets
S3 Market leadership
S4 Promising quality
EXTERNAL FACTORS S5 Product for all ages
Opportunities – O SO Strategy WO 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)
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 2012

Return on Total Assets (ROA) = Net Income = 75,694 = 96,001
Total Asset 444,339 482,305
= 0.17 = 0.20
Return on Equity (ROE) = Net Income = 75,694 = 96,001
Total Stockholders Equity 340,109 282,677
= 0.22 = 0.34
Return on Investment (ROI) = Net profit = 75,694 = 96,001
After tax and interest
444,339 482,305
Total Assets
= 0.17 = 0.20
Earning Per Share = Net Income = 75,694 = 96,001
Number of shares of 131,582 657,910
Common stock outstanding = 0.58 = 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-to-
earnings 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(%) PERCENT (%)
0.205 0.4
0.2 0.35
0.195
0.3
0.19
0.185 0.25
0.18 0.2
PERCENT(%) PERCENT (%)
0.175 0.15
0.17
0.1
0.165
0.16 0.05
0.155 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(%) PERCENT(%)
0.205 0.7
0.2
0.6
0.195
0.19 0.5
0.185 0.4
0.18
PERCENT(%) 0.3 PERCENT(%)
0.175
0.17 0.2
0.165
0.1
0.16
0.155 0
2011 2012 2011 2012

GRAPH 3: Comparison between 2011 GRAPH 4: Comparison between 2011

and 2012 Return on Investment Ratio(ROI). and 2012 Earning Per Share Ratio(EPS).
 LIQUIDITY RATIO 2011 2012
Current Ratio = Current assets = 349,754 = 380,266
Current Liabilities 137,947 120,393
= 2.54 = 3.16
Quick Ratio = 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 2011 2012
Debt to = Total debt = 161,662 = 142,196
total asset Total Asset 444,339 482,305
ratio = 0.36 = 0.29

Debt to = Total debt = 161,662 = 142,196

Equity ratio Total stockholders equity 340,109 282,677
= 0.48 = 0.50
LTD to = Long Term Debt = 23,715 = 21,803
Equity ratio Total stockholders equity 340,109 282,677
= 0.07 = 0.08
Times interest = EBIT = 105,057 = 130,649
Earned ratio Total interest charged 1,573 2,328
= 66.79 = 56.12

Inventory turnover = Sales = 568,476 = 723,411

Inventory 170,955 192,285
= 3.33 = 3.76
Fixed Asset Turnover = Sales = 568,476 = 723,411
Fixed Asset 94,585 102,039
= 6.01 = 5.57

Total Asset Turnover = Sales = 568,476 = 723,411

Total Asset 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 Threat of New Entrance – High

- Spending behaviour is affected by - New entrants have limited access to

their income level distribution channels as most of the first tier

- Depends on economic condition
against Income level
- Aware of consumer rights
- Low swithching cost to other
similar brands.
retail malls are fully occupied.
- Difficult to build brand loyalty and delivering
quality as Malaysian consumer are less price-
sensitive.
- 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 Threat of Substitute – Low

- Padini control the design of its apparel
& shoes while outsource its
manufacturing services to 10 OEM
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.
- Apparel industry is a saturated and
matured market where it is basic
needs for the living
- 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.