Highlights

F&B: As at June 13, all of its café outlets in Malaysia and Singapore are halal-certified. Its halal campaign was held on 8 Jul 2013, slightly delayed from initial plan of launching in April. The delay was partially due to the elections in Malaysia.

In order to create more awareness about Oldtown’s halal certification in the Muslim market, the group has created a set menu during the Ramadan season (My Dulang) and has recorded a significant increase in patronage during dinner period. Oldtown has also engaged with the Islamic religion and community leaders by inviting them to their café outlets.

Oldtown is adopting multi-pronged strategies to cater for the different market segments’ needs and requirements, after taking into consideration their preferences and lifestyle. There will be three types of outlets over the long-run, namely Signature Café Outlet, Generic Café Outlet and Kiosk Outlet. Signature outlet would largely cater to international market.

Plans on setting up three more kiosk outlets are currently on track, with its second outlet to be open on 17 Oct 2013. Other than these three, Oldtown is also engaging with petroleum companies to set up kiosk outlets in petrol stations. The group would ramp up its kiosks outlets post-signing of agreement(s), which we expect it to materialize soon.

The central kitchen in China is expected to roll out its commercial production by end-2013 which would be able to support a larger number of new café outlets.

FMCG: 1QFY14 showed double digit growth (+13.4% yoy; +10.1% qoq) largely attributable to the commencement of its new plant in Tasek Industrial Park, Ipoh and the 70% acquisition in Advance City Ltd in May. Capacity has also increased with lower utilization rate of 36% during the quarter vs. 101% in 4QFY13. The plant now has a much higher capacity to cater to wider international market, especially Taiwan and Thailand.

Risks

• Relatively elastic demand.
• Quality of food and services.
• Rising raw material prices.

Forecasts

Unchanged.

Rating

HOLD

Positives

• Strong earnings growth (2-year CAGR of 13.9%);
• Market leader under the white coffee business;
• Decent dividend policy of 50% for a newly listed company;
• Resilient earnings and low capex requirements.

Negatives

• Competitive industry with low barriers of entry; and
• Global economic slowdown could jeopardise group’s sales and earnings.

Valuation

Maintain HOLD with unchanged TP of RM2.43 based on unchanged 17x P/E to FY14 EPS.

Source: Hong Leong Investment Bank Research - 13 Sep 2013