Results

Within Expectations – Reported FY14 PATAMI of RM48.9m came in within expectations, accounting for 96.1% and 96.6% of ours and streets’ full year forecasts.

Deviations

None.

Dividends

Declared final dividend of 3 sens/share, bringing FY14’s total dividends to 6 sen/share (in-line with our estimates). This represents a payout and yield of 56% and 2.9% respectively.

We are maintaining our dividend payout forecasts of 50% based on Oldtown’s dividend policy.

Highlights

Qoq: Decline in revenue was due to the decline on FMCG segment as it experienced lower local and export sales. Earnings fell further from higher amortization costs and higher effective tax rate.

Yoy: Revenue grew 7.5% on the back of strong performance from FMCG segment, partially offset by the slight decline of 0.1% under café chain segment. Earnings growth contracted from higher amortization costs and higher effective tax rate.

FY14: 10.9% growth in revenue driven by both café chain and FMCG segment. Earnings grew in tandem with revenue growth as margins were largely maintained on a yoy basis.

Oldtown has a total of 238 café outlets as at Mar 14, representing an additional 16 outlets in total compared to FY13. However comparing on a qoq basis, only 4 additional outlets were opened.

Despite the slower growth in outlet openings in FY14, we are expecting the group to ramp up with its outlets count in FY15- 16 on the back of intention to accelerate its regional expansion. Oldtown is also actively exploring penetration opportunities to accelerate its regional outlets expansion, similar to its recent agreement with OTK (Australia) announced last week.

Complementing that, the group also has the intention to expand its FMCG business into the Australian market as part of its plan to venture into other territories.

Risks

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

Forecasts

Unchanged.

Rating

BUY

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 RM2.29 based on unchanged 17x P/E on FY15 EPS.

Source: Hong Leong Investment Bank Research - 29 May 2014