Padini to benefit from zero-rated GST, but outlook remains challenging
KUCHING: Padini Holdings Bhd ( Padini) will benefit from the zero-rated goods and services tax (GST) but analysts project the outlook for the group to remain challenging.
According to the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), with the zero-rated GST starting June 1, 2018, Padini, which had previously absorbed GST into their respective merchandising prices, may lower its selling prices for all of its brands.
The Kenanga Research opined that this “will enable consumers to purchase in a larger volume”.
On Padini’s margins outlook, AmInvestment Bank Bhd (AmInvestment Bank) said that it appears unknown given the uncertainty over the quantum of the sales and service tax (SST) being imposed.
The research firm also believed that the transitional period of GST being zero-rated could prove beneficial to Padini given that the fashion retailer had been absorbing GST all this while.
While Hari Raya spending and GST abolishment will provide temporary short term boost to sales, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) expected the outlook for the group to remain challenging.
“This is as new outlets are expected to take longer period to break even due to the crowded local retail landscape.
“In 2018, it is estimated that about 24 foreign brands has opened their first outlet in Malaysia,” MIDF Research said.
Among the foreign brands, MIDF Research viewed that Max Fashion, which positioned themselves as value fashion brand, would pose as the greatest threat to Padini.
However, Kenanga Research believed Padini has adopted the right strategy in focusing on the value- for-money segment in Brands Outlet while the business restructuring in Vincci and Seed have also born fruits.
“Moving forward, we expect the earnings momentum to be sustained at the current level, pending the gestation period for its Cambodian operation, which is expected to incur higher start-up costs than Malaysian ones.
“We believe Padini is on track to meet its financial year 2018 estimate (FY18E) targeted stores opening of 12 new stores for domestic operation and three new stores in Cambodia,” the research arm said.
On another note, AmInvestment Bank highlighted that Padini’s five-year goal is for export to eventually contribute 10 per cent of total revenue mix.
The research firm gathered that the prospective market is unlikely to be more mature and established customer bases such as Thailand or Indonesia.
“It leaves remaining possibilities such as Myanmar, Laos and Vietnam,” AmInvestment Bank said.
“We are encouraged by the calculated and measured approach to supplement growth over the long run. However, export contributions are likely to be insignificant in the nearer term.”