Fundamental Investing
Padini vs Uniqlo?
People have always pitched in Padini vs Uniqlo or H&M for comparison. They will always say that "Padini is a sunset stock", "Nobody buys Padini these days" or "People are queueing up to pay in Uniqlo, but there are not many people over in Padini". Is it, really? Well, I am here to make an objective comparison between Padini & Uniqlo to find out.
Unfortunately, I do not know of any financial report publicly available for H&M and therefore will not be able to make such comparison. I shall use Wing Tai's Annual Report Year 2015 in order to make a comparison. Wing Tai owns 45% of Uniqlo in a joint venture as according to that annual report.
How did I get all these figures including Equity portion for Uniqlo? Well, luckily it is stated in Note 21 - Investment in Joint Ventures of Wing Tai's Year 2015 annual report. The figures for Uniqlo is 100%, and not adjusted to Wing Tai's portion of 45%.
From what we can see, Uniqlo experience a jump in revenue of 34.7% whereas Padini's revenue increased by 12.9%. However, just like all others in the retail industry, they have to absorb the GST cost. And coupled with store expansion costs & competitive pricing from competitiors (let's not forget about H&M too), therefore both Padini & Uniqlo experience a drop in profit before tax.
Padini still commands a slightly higher profit margins of 11% compared to Uniqlo's 9%, while Uniqlo have a better ROE of 32% compared to Padini's 28%. But let's not forget Padini still have the bigger share in the retail market with RM 978 million in sales compared to Uniqlo's RM 384 million in sales.
Can we say Padini is a sunset stock? For a company still increasing in revenues each and every year, expanding stores aggressively & closing down loss making ones? I would say no. It looks more of a company well managed. You may refer to kcchongnz's post for further analysis: http://klse.i3investor.com/blogs/kcchongnz/85800.jsp
What about Uniqlo? Is it just not as good as Padini? Well, in margins alone, Padini is the slight winner but Uniqlo do have the higher ROE here. Too bad there is no further details about its cash flow in the report. Otherwise, we can analyse it futher in detail. Assuming Uniqlo can continue to expand and increase its revenues by 34% each year, I would say it will take a few good years before it can reach the market share like Padini. But with consumer sentiments still weak this year and perhaps next year, it's anybody's guessing on how fast Uniqlo can grow in the local market.
On a final note, this is I3investor website and I hope most people would be able to make a point with facts and figures and not just sentiments and favouritsm. Just like the slogan of this site itself: 'Independent. Intelligent. Informed.'
Thank you.
shinado
Disclosure: As of writing, I own some shares of Padini.
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5 people like this. Showing 14 of 14 comments
If you are interested to study more about retail, Forbes has a good 3 parts writeup on Zara, Uniqlo & H&M
http://www.forbes.com/sites/gregpetro/2012/11/05/the-future-of-fashion-retailing-the-hm-approach-part-3-of-3/
A summary
Uniqlo focuses on technological differentiation, using long product development cycles and offering basics that appeal to a large consumer base.
Zara has built a supply chain that allows it to follow fashion trends and deliver goods in near real-time, they refresh their merchandise once every 2 weeks. That explains why they can price their product so competitively while renting the most expensive places in city.
H&M uses a hybrid of the Uniqlo and Zara models. It manages to merge a commitment to longevity while staying responsive to fashion trends.
2015-11-10 04:24
JT Yeo, thank you for sharing an interesting article.
I quote from the article:
"How do Uniqlo, Zara and H&M do this? An all-important shared pursuit of the three companies is a deep understanding of their customers’ wants and needs. "
and:
"The bottom line is this: In today’s highly competitive retail environment, regardless of approach, it’s critical to know how consumers will react to products well before they’re launched."
I fully agree that knowing what your customer wants and needs is important. Each company have their own target audience in the market, and successful in their own ways.
Padini, being the local player, have the earlier head start and most likely the biggest share of the pie. I think it will remain the same for some time to come.
2015-11-10 09:09
Wing Tai owns 45% of Uniqlo. Frankly speaking, I do not know how to tag a stock to this post. I'm not even sure who put the labels for Yong Tai.
2015-11-10 16:01
You own the stock, that's a bias, and you see what you want to see.
Padini only survives because it is in the smallest towns. And they have been in MY for how long? Uniqlo is an infant, and already its revenues are almost 50% of Padini. And its Margins? IT has expanded so aggressively, its amazing it is making money - of course, like I mentioned earlier, its margins are superior, bar none.
VAlue investing is for the long term and in 3-5 years, Padini is already in decline, and in 5 years it will be far worse.
Good luck holding
2015-11-11 09:39
valuelurker, I admit that as someone holding Padini, my comments and views might tend to be bias. But the figures and numbers that I present in this post is just facts.
You may choose to disagree on my views, but I do hope you agree with me the facts below:
1.) Uniqlo indeed does need a few good years playing catching with Padini in terms of Revenue.
2.) In current state Padini has the very slight advantage in profit margins.
3.) There is heavy competition in the retail industry. Apart from Padini & Uniqlo, there's also H&M, Zara, Giordano, Cotton On, Mango, G2000, Voir, Kitschen and many many more. Each caters to their own customer needs and wants.
4.) And in such competitive market, one have got to do what it takes to survive. Even including opening stores in small towns.
Let's agree to disagree on the rest. Thank you.
Posted by valuelurker > Nov 11, 2015 09:39 AM | Report Abuse
You own the stock, that's a bias, and you see what you want to see.
Padini only survives because it is in the smallest towns. And they have been in MY for how long? Uniqlo is an infant, and already its revenues are almost 50% of Padini. And its Margins? IT has expanded so aggressively, its amazing it is making money - of course, like I mentioned earlier, its margins are superior, bar none.
VAlue investing is for the long term and in 3-5 years, Padini is already in decline, and in 5 years it will be far worse.
Good luck holding
2015-11-11 10:32
2.) In current state Padini has the very slight advantage in profit margins.
As I said, new players will always incur huge costs. 11% for a business that has had so many years of advantage is appalling.
3.) There is heavy competition in the retail industry. Apart from Padini & Uniqlo, there's also H&M, Zara, Giordano, Cotton On, Mango, G2000, Voir, Kitschen and many many more. Each caters to their own customer needs and wants.
Exactly, you said it yourself. They will only suffer.
Stick to the facts and look at the trend, since 5 years ago not do a comparison since last year. Also for Uniqlo using Wing Tai's numbers. Then you shall see. 3 years is not a long time, and then it is all the way down hill. The only recourse is that you get 6% dividends - the next question would be how much erosion in share price and MOS are you willing to take on, to still get your required IRR. Not much I reckon
2015-11-11 12:32
valuelurker, for your comment on 5 year past analysis, kcchongnz already have analysis for Padini's last 10 financial years. I have already link his post on my post above.
As for your comment on point no. 2, perhaps you might be interested to find out the average profit margins in the apparel sector. L.C.Chong did a apparel industry peer comparison: http://www.slideshare.net/lcchong76/apparels-peer-comparison
Obviously that comparison did not include H&M or Uniqlo because his comparison is more in depth and we are lacking in depth financial reports for H&M & Uniqlo.
To conclude that 11% profit margin as "appalling" seems to be unfair to the apparel industry as a whole. I would suggest that you reserve such conclusion until Uniqlo has actually been around for a few more years and we can truly judge its profit margins with the rest of the group.
I do realize that we are looking at the same coin but on different sides of it. Perhaps it's best I just leave it as it is. Thank you.
Posted by valuelurker > Nov 11, 2015 12:32 PM | Report Abuse
2.) In current state Padini has the very slight advantage in profit margins.
As I said, new players will always incur huge costs. 11% for a business that has had so many years of advantage is appalling.
3.) There is heavy competition in the retail industry. Apart from Padini & Uniqlo, there's also H&M, Zara, Giordano, Cotton On, Mango, G2000, Voir, Kitschen and many many more. Each caters to their own customer needs and wants.
Exactly, you said it yourself. They will only suffer.
Stick to the facts and look at the trend, since 5 years ago not do a comparison since last year. Also for Uniqlo using Wing Tai's numbers. Then you shall see. 3 years is not a long time, and then it is all the way down hill. The only recourse is that you get 6% dividends - the next question would be how much erosion in share price and MOS are you willing to take on, to still get your required IRR. Not much I reckon
2015-11-11 12:59
Uniqlo is better for a good very good reason. If you think from retail business perspective, you will know the answer.
There are many strategies to grow sales & Padini is using the least favourable option. You don't measure a business from no. of outstanding shares,PE or any investment jargon
2015-11-11 19:35
Great job! Shinado.
I like the discussions in the comment section. Well done to all contributed on the comments.
Shinado, I like what you said on this:
"make a point with facts and figures and not just sentiments and favouritsm"
I joined this website & found out most people like to chit chat in accordance with their favour & mood. Only very small group of people really talked with facts & shared with useful info (be it positive or negative news)
2015-11-11 20:38
agreed!
Shinado, I like what you said on this:
"make a point with facts and figures and not just sentiments and favouritsm"
I joined this website & found out most people like to chit chat in accordance with their favour & mood. Only very small group of people really talked with facts & shared with useful info (be it positive or negative news)
2015-11-11 20:39
HJey, I have a few Uniqlo shirts too and quite frankly I like them as well.
I agree when you mentioned business cannot be measured on any investment jargon alone. After all, how do you valuate a brand name like Coke? It is a very valuable intangible asset that you can never put numbers in a financial sheet.
But investing methods come in many different ways and approach. I take the approach that best suits my risk of appetite and style of investing. I want to invest knowing that I will not lose sleep even if the market crash tomorrow.
I am not a business man and certainly might not have a great eye on knowing which business is good or bad. But at least I can partly rely on financial reports to aid me in making a decision on what company to invest in.
Posted by HJey > Nov 11, 2015 07:35 PM | Report Abuse
Uniqlo is better for a good very good reason. If you think from retail business perspective, you will know the answer.
There are many strategies to grow sales & Padini is using the least favourable option. You don't measure a business from no. of outstanding shares,PE or any investment jargon
2015-11-11 22:18
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JT Yeo
I think Padini is not about to disappear, the retail industry is enough to accommodate all these players.
But retail industry is inherently a challenging business in terms of competitions, fashion, trend and taste. So the key is to understand what is the defensibility of Padini. Is it price? The brand? The quality & design? Or maybe the supply chain?
Once you know their defensibility, you have to find out how much would they need to reinvest to maintain or grow that. Then you probably have an idea how much Padini is worth.
2015-11-10 04:10