What I learned from Padini's AGM 2015
- Alex Tan
- Nov 18, 2015
- 3 min read
Ever since I started my investing journey, this is the first Annual General Meeting I have attended so far. It was held today (18 Nov) at Hicom Glenmarie, Shah Alam. I took a day off from my work, hoping to get more future prospects and current operations of Padini from the directors. This AGM was pretty short in duration, about 1 hour 30 minutes. Free lunch and gift vouchers were provided.
Mr. Chan Kwai Heng, executive director
Mr. Chia Swee Yuen, the chairman of the Board, kickstarted the AGM by answering questions from the minority shareholders. Mr. Yong Pang Chaun, the managing director of Padini, was rather quiet. Most of the questions asked were answered by Mr. Chan Kwai Heng, the executive director. So what did I learn from this AGM?
General Q&A by the floor
The management has planned to invest about RM40 million in opening 16 new stores in financial year 2016 (FY16).
Purchasing costs have risen due to the weakening of Ringgit (RM).
The management has recently launched an online platform on Nov. 11, 2015 - www.padini.com
High cashpile was to deal with unforeseen emergencies. Mr. Chan, executive director, didn't seem to agree with shareholders' request to pay that out as dividends.
Despite a fall in cotton price, the management doesn't have any plans to venture into buying cheap commodities (cotton) in bulk. Mr. Chan elaborated that speculation is not their expertise.
My conversations with the management
I spoke to the management of Padini and below are the most important takeaways for me from the AGM.
Brands Outlet has an extremely cheaper product portfolio. According to Mr. Chan, Padini Concept Stores sell 2 pants for RM168, but Brands Outlets sell 2 pants for RM80 (If i'm not mistaken). The main reason is, if you take a closer look at the store layout, Brands Outlets make use of cheap and simple furnitures. He gave an example - products are placed on a wooden pellet, which is cheap! (see above)
Padini has an advantage compared to Factory Outlet Store (FOS). FOS's partial store areas are taken up by other concessionaires. The remaining areas are used by FOS to sell clothing from other countries. As a result, FOS might face uncommon visions between the concessionaires and itself. Also, it could face hardships in the midst of fast fashion change. On the other hand, Padini has a different business model which allows it to control what to sell in its stores.
About RM109 million was invested in unit trusts so as to support dividend payments. For your information, this amount is half of the total cash and cash equivalents held by Padini as of FY15. Personally, I see this as inappropriate. What if financial crisis hits tomorrow? Why not use that money to fund more expansions? Why not executive share buybacks? Why not pay higher dividends? Why not just keep in high yield fixed deposits which is not subject to volatility?
Despite this unit trust issue, Padini is still one of my favourite stocks. For me, not all companies are perfectly managed. As long as it scores an 'A', it is a good company for me. I don't need it to get 100%!
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