Is there a chance with Padini Holdings Berhad’s (KLSE: Padini) 41% undervaluation?

The estimated real value of Padini Holdings Berhad is RM3.52 based on 2 -phase free cash flow to equity
Padini Holdings Berhad is estimated at 41% undervalued on the basis of the current stock price of RM2.07
Our estimate of the real value is 40% higher than Padini Holdings Berhad’s analyst price objective of RM2.51

How far away is Padini Holdings Berhad (KLSE: Padini) of his intrinsic value? With the help of the most recent financial data, we will see if the share is reasonably priced by taking the prediction of the future cash flows of the company and returning them to today’s value. A way to achieve this is by using the model (Discounted Cash Flow) model (DCF). Models such as these can appear outside the understanding of a layman, but they are fairly easy to follow.

Companies can be appreciated in many ways, so we would point out that a DCF is not perfect for every situation. Everyone who is interested in learning a little more about intrinsic value must read from the simply Wall St analysis model.

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We use what is known as a 2-phase model, which simply means that we have two different periods of growth rates for the cash flows of the company. In general, the first phase is a higher growth, and the second phase is a lower growth phase. To start with, we must estimate cash flows for the next ten years. Where possible we use estimates of analysts, but when they are not available, we extrapolate the previous free cash flow (FCF) of the latest estimate or reported value. We assume that companies with shrinking free cash flow will slow down their contraction, and that companies with a growing free cash flow will see their growth slowly during this period. We do this to indicate that growth tends to slow down more in the early years than in later years.

A DCF is entirely about the idea that a dollar is less valuable in the future today than a dollar, so we consider the value of these future cash flows on their estimated value in today’s dollars:

	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035
Delivered FCF (Myr, millions)	RM275.3M	RM279.0M	RM284.5M	RM291.5M	RM299.7M	RM308.9m	RM318.9m	RM329.6M	RM341.0M	RM352.9m
Growth rate estimate source	Analyst X2	Analyst X2	EST @ 1.96%	EST @ 2.47%	EST @ 2.82%	EST @ 3.07%	EST @ 3.24%	EST @ 3.36%	EST @ 3.44%	EST @ 3.50%
Current value (myr, millions) discounted @ 11%	RM248	RM226	RM207	RM191	RM177	RM164	RM153	RM142	RM132	RM123

(“Est” = FCF growth speed estimated by simply Wall St)
The current value of 10-year Cash Flow (PVCF) = RM1.8B

We must now calculate the terminal value, which takes all future cash flows into account after this ten -year period. The Gordon growth formula is used to calculate the terminal value for a future annual growth rate equal to the 5-year average of the 10-year return of 3.6%. We discount on the terminal cash flows to today’s value at a cost of equity of 11%.

Terminal value (TV)= FCF₂₀₃₅ × (1 + g) ÷ (R – G) = RM353M × (1 + 3.6%) ÷ (11% – 3.6%) = RM4.9B

Current value of terminal value (PVTV)= TV / (1 + R)¹⁰= RM4.9B ÷ (1 + 11%)¹⁰= RM1.7B

The total value, or stock value, is then the sum of the present value of the future cash flows, which in this case is RM3.5b. In the last step we divide the share value through the number of outstanding shares. Compared to the current share price of RM2.1, the company seems to be a fairly good value with a discount of 41% to where the stock price is currently trading. The assumptions in each calculation have a major impact on the valuation, so it is better to see this as a rough estimate, not accurately to the last cent.

DCF — KLSE: Padini discount on Cashflow July 10, 2025

We would point out that the most important input for a discount with a discount is the disconeration foot and of course the actual cash flows. You don’t have to agree with these inputs, I recommend doing the calculations again and playing with it. The DCF also does not take into account the possible cyclicity of an industry, or the future capital requirements of a company, so it does not give a complete picture of the potential performance of a company. Since we consider Padini Holdings Berhad as potential shareholders, the costs of equity are used as the disconneting foot, instead of the capital costs (or weighted average capital costs, WACC) that extends debts. In this calculation we used 11%, which is based on a beta of 1,260. Beta is a measure of the volatility of a share compared to the market as a whole. We get our beta from the sector average beta from worldwide comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable reach for a stable company.

See our newest analysis for Padini Holdings Berhad

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Appreciation is only one side of the coin in terms of building your investment thesis, and it will ideally not be the only analysis that you take a close look at for a company. It is not possible to obtain a watertight rating with a DCF model. It should be seen earlier as a guide for “what assumptions should be true that this stock is under/overvalued?” If a company with a different rate grows, or if the costs of equity or risk -free speed changes considerably, the output can look very different. What is the reason for the share price that is under the intrinsic value? For Padini Holdings Berhad we have compiled three important factors that you must further investigate:

Risks: Keep in mind that Padini Holdings Berhad is shown 1 warning signal in our investment analysis You need to know about …
Future income: How does Padini’s growth rate relate to his colleagues and the wider market? Dig deeper into the consensus number of the analysts for the coming years by interacting with our free analyst -ware chart.
Other solid companies: Low debts, a high return on equity and good performance from the past are fundamentally for a strong company. Why not explore our interactive list of shares with solid business fundamentals to see if there are other companies that you may not have considered!

Ps. Simply Wall St works every day its DCF calculation for every Malaysian shares, so if you want to find the intrinsic value of a different stock, just search here.

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This article by Simply Wall St is generally in nature. We comment based on historical data and analyst forecasts that only use an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell shares and does not take your objectives or your financial situation into account. We strive to bring you in the long term -targeted analysis, powered by fundamental data. Note that our analysis may not take into account the latest price -sensitive company announcements or qualitative material. Simply Wall St has no position in the aforementioned stocks.