Investment Highlights

• OldTown’s 3QFY18 results were below expectations as FMCG China sales stalled unexpectedly and F&B margins took a hit. We maintain our ACCEPT OFFER recommendation at the offer price of RM3.18. It implies a trailing P/E of 26.8x (last 4 quarter of historical earnings). It is close to valuations at which JDE took Super Group private in late 2016 – 29.7x trailing P/E.

• An interim dividend of 1.0 sen/share was declared.

• OldTown registered a 3QFY18 profit of RM11.6mil (QoQ: - 23.5%, YoY: -52.2%), bringing 9MFY18 to RM43.6mil (YoY: - 14.3%). It came below our and consensus forecasts, at 61% and 64% of our earnings estimates respectively.

• OldTown’s results key highlights included: i. Quarterly FMCG revenue was flat YoY. Sales to North Asia, which is predominantly FMCG contributions, alarmingly contracted 6.0%. OldTown’s e-commercefuelled growth appears to have stalled. Despite this, cumulative FMCG sales grew 13% YoY, but remains below our 17% estimate for the year. ii. FMCG PBT margins saw a sharp contraction for the quarter by 18.7ppts to 17.3%, but it was expected. The rather large dilution is due to: i) realising 30% costlier coffee inputs; and ii) recognition of A&P tied to China’s Double 11 Singles Day sales. In the preceding year, the lumpy A&P was recognised in 4QFY17 instead. iii. F&B revenue for the quarter was flattish despite seeing despite its production facility was being disrupted in Sep 2017 due to an accidental fire. Meanwhile earnings contracted 23% YoY for the quarter. This was possibly due to partial food production sourcing and processing being outsourced.

• On 30 January 2018, the offer pre-conditional voluntary general offer from Jacobs Douwe Egberts Asia (JDE Asia) turned conditional, as all its pre-conditions have been satisfied. Specifically, approval by Competition Commission of Singapore that the takeover will not infringe anti-trust regulation has been obtained. Meanwhile, offer documents have been circulated on 20 February 2018 while the first closing date of the offer is 13 March 2018.

• We reiterate our recommendation to ACCEPT OFFER. The trailing P/E of 26.8x is relatively close to Super Group’s privatization offer by the same offeror and it is well above OldTown’s historical trailing P/E mean and high of 16.9x and 25.0x respectively.

Source: AmInvest Research - 28 Feb 2018