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With a much higher ROE than its international peers, Padini Holdings deserves a better valuation.
When one gets to be rated as one of the country's top-30 local brands, it is an achievement that deserves more than just a pat on the back. And that is what shareholders of top clothes retailer, Padini Holdings Bhd, are probably hoping from the market. Padini is one of the top Malaysian- based clothing retailers of ladies', men's and maternity wear under several brands. It also sells ladies' shoes and accessories. The company was listed on the Bursa second board in 1998, and transferred to the main board on July 28, 2004.
Padini's share price has, however, been trading way below the valuation accorded to its foreign peers. Some research houses like the DBS Group Research think the stock deserves more recognition from investors. This grouse is probably easy to understand, as Padini is actually the largest locally bred clothing and accessories retailer with a sizeable domestic presence, a fact which is probably still not apparent to most investors. Still, why is the stock still being traded at a discount to its foreign peers despite having a stronger growth rate as well as being a consistent earnings performer?
GLOBAL PEERS ARE MUCH BIGGER
One reason could be due to the fact that its market capitalisation is still relatively small compared to the big international retailers, which puts it at a disadvantage when bidding for the attention of big investment funds. According to DBS Research, Padini's global peers are international brands such as Giordano, Polo Ralph Lauren, Zhejiang Semir Garment Co, and GUESS? Inc. For example, Giordano's products are comparable to Padini's `Padini Authentics' Brand, whereas Zara is comparable with Seed and Padini brands.
However, these international companies are substantially larger than Padini, with over US$ 500 million in market capitalisation (see Figure 1), while Zara is a privately-owned company. Singapore-based Charles & Keith, meanwhile, is Padini's closest competitor for its handbags, shoes and accessories segment....