Investment Highlights

• Jacobs Douwe Egberts Asia (JDE Asia), an indirect wholly owned subsidiary of Jacobs Douwe Egberts B. V. (JDE) made a pre-conditional voluntary conditional general offer of RM3.18/share in cash.

• JDE Asia intends to delist and privatise OldTown. JDE Asia has thus far secured a 51.5% stake through: i) management, as represented by OldTown International S/B (42.6%) and Lee Siew Heng (1.3%); and ii) institutional investor, Mawer Investment Management Ltd (7.5%). According to Bloomberg, institutional investors in aggregate account for a 34.6% stake in OldTown as of 3 Dec 2017. It needs 90% ownership to successfully privatise OldTown.

• The offer will be subject to these pre-conditions: i) approval by Competition Commission of Singapore and ii) any other appropriate anti-trust authorisations from relevant authorities that may be identified by the offeror. The cutoff date (long-stop date) for the pre-conditions to be met is 11 Aug 2018. We think the pre-conditions are unlikely to be a stumbling block with the combined white coffee market share of Singapore amounting to 50%, which is below the 60% threshold for a possible breach of anti-trust laws.

• JDE, a privately-owned Dutch company, is second only to Nestle (22%) in global coffee retail with 9.5% revenue market share according to Euromonitor. It recently took OldTown’s competitor Super Group private in late 2016 at a one-year forward P/E of 28x.

• Our current target price of RM3.20 is pegged to 18x CY18 P/E (20% discount to its domestic peers). We have a BUY recommendation supported by its export-driven growth, market leader as #1 white coffee brand in all its core markets and outstanding operational track record. Seeing the offer price is close to our fair value, we ascribe for investors to accept the offer by JDE of RM3.18/share, valuing OldTown at CY18 P/E of 17.5x.

• However, we opine OldTown is on the brink of a re-rating beyond our P/E peg as its FMCG make consistent headway into China. Super’s valuations would have been a good indication of a potential re-rating to the region of one-year forward P/E of 28x. In terms of its comparables, OldTown’s local consumer peers (21.6x CY18 PE) and regional FMCG peers (21.5x CY18PE) would further suggest that there may be upside to OldTown’s privatisation offer at 17.5x CY18 PE (see Exhibit 9).

Source: AmInvest Research - 12 Dec 2017