Results

Within Expectations – Reported 9MFY14 PATAMI of RM36.99m came in within expectations, accounting for 72.1% and 71.6% our ours and streets’ full year forecasts.

Do note that 4Q usually records the strongest earnings among other quarters, ranging from 26%-32% historically.

Deviations

None.

Dividends

Declared interim dividend of 3 sens/share (in-line with our estimates), representing a payout and yield of 36.8% and 1.6% respectively.

Highlights

9MFY14 revenue grew 12% contributed largely by the double-digit growth under Oldtown’s FMCG segment (+22.8%) as the segment consolidated an additional 8 months contribution from its newly acquired HK subsidiary, Advance City Ltd. However, earnings experienced slower growth on the back of higher operating costs (minimum wage ruling, advertising costs, promotion fees and selling and distribution expenses), partially mitigated by lower effective tax rate of 21.97% vs. 25.08% in 9MFY13.

Oldtown has a total of 234 café outlets as at Dec 13, representing an additional 14 outlets in total compared to 9MFY13. However comparing on a qoq basis, only 7 additional outlets were opened. If Oldtown maintains its outlet openings consistently, total outlets for FY3/14 would be in line with our estimates of 242 outlets.

Despite the slower growth in outlet openings in FY3/14, we are expecting the group to ramp up with its outlets count in FY3/15-16 on the back of its intention to accelerate its regional expansion.

With Oldtown’s new beverage manufacturing facility is already up and running, it will be on the move to increase its market share in the existing export markets by seeking for more potential new distributors and retailers in different countries.

Given its huge capacity in the new plant, Oldtown will also be expanding further to the second tier cities of the central region of China.

Risks

• Relatively elastic demand.
• Quality of food and services.
• Market acceptance on kiosk business model.
• Rising raw material prices.

Forecasts

Unchanged.

Rating

HOLD

Positives

• Market leader under the white coffee business;
• Decent dividend policy for a newly listed company; and
• 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 BUY with unchanged TP of RM2.33 based on unchanged 17x P/E on FY15 EPS.

Source: Hong Leong Investment Bank Research - 27 Feb 2014