Wednesday August 8, 2012
Analyst positive on Padini and say deal with FJ Benjamin should bring long-term benefits
By LIZ LEE
PETALING JAYA: Padini Holdings Bhd has signed an exclusive 10-year master franchise agreement with Singaporean company FJ Benjamin Pte Ltd through its wholly-owned subsidiary, Vincci Ladies' Specialties Centre Sdn Bhd, to distribute Vincci (VNC) shoes and accessories in Indonesia.
Under the agreement, FJ Benjamin will open a total of 25 VNC stores within the next five years throughout Indonesia via its associate, PT Gilang Agung Persada.
However, Alliance Research believed that the deal would need time to positively affect the group's balance sheet.
In a report released yesterday, Alliance analyst Ian Wan said the exclusive deal was within expectation and the house was positive on the long-term prospect of the tie-up.
“We see great earnings potential from the Indonesian market, underpinned by rising affluence and young population in the country,” Wan said. “However, we expect limited impact to financial year ending June 30, 2013 (FY13) earnings, as it could take some time to lay down the foundation works for the venture.”
Wan saw this as a re-rating catalyst as it might attract more foreign interests in the future with its increasing exposure in the promising Indonesian economy.
Wan further reported that the Padini management revealed that sales to Indonesia's VNC would be on a cost-plus basis, with expected net margin of 7% to 8% as compared with the group's existing profit margin of 13% to 14%.
“However, we believe this is a trade-off as the group can quickly penetrate into the key markets in Indonesia by partnering FJ Benjamin, which is a leading fashion retailer in South-East Asia with a 53-year track record in managing global and regional brands,” he said.
Alliance reiterated its “strong buy” call on Padini.
Padini managing director Yong Pang Chaun said in a press statement: “We are excited to start this partnership with the FJ Benjamin group in Indonesia, a market they know well having established a presence there for over 30 years.
“During this period, they have done an incredible job building up foreign brands in Indonesia. We believe they can do the same for the VNC brand in Indonesia, which is today one of the fastest-growing economies in Asean.”
Padini, which has its roots in manufacturing, trading and distribution of garments, opened 320 stores in South-East Asia, the Middle East and North Africa in FY11.
Of that, 85 are VNC stores beyond Malaysian shores. Padini has an annual group turnover of RM568mil in FY11.
FJ Benjamin, on the other hand, has a network of 190 stores representing high-end brands like Banana Republic, Gap, La Senza, Marc Ecko and Victorinox Swiss Army. It operates in 11 markets including Singa-pore, Malaysia, Indonesia, Taiwan, China, Hong Kong, the UK, Italy and the United States.