Results

Below Expectations – Reported 1QFY15 PATAMI of RM11.7m came in below expectations, accounting for only 19.1% and 19.7% of ours and streets’ full year forecasts.

Deviations

• Weaker-than-expected contribution from café outlets and FMCG.
• Higher-than-expected depreciation and amortization costs.

Dividends

None.

Highlights

Café outlet: Revenue grew 5.5% yoy and 4% qoq largely due to higher average revenue per outlet during the quarter. PBT however recorded a decline (5.9% yoy and 16.8% qoq) due to higher selling, distribution, advertising and promotional expenses.

Oldtown has a total of 237 café outlets as at June 14, representing an additional 12 outlets in total compared to FY13. However on a qoq basis, there were 1 outlet less compared to 4QFY14.

After executing the second Master License Agreement in June, Oldtown would be continuing its sub-licensing model to accelerate the expansion plans in Indonesia and targets to open 6-8 new outlets in FY15.

FMCG: FMCG’s PBT experienced slight increase (+1.3%) yoy despite the 9.6% growth in revenue mainly due to higher selling and distribution expenses. Qoq, 2% growth in revenue were offset by the increase in operating expenses, resulting in a drop of 2.1% in PBT.

Oldtown will continue to strengthen its foothold in the ASEAN region by intensifying its marketing initiatives in Indonesia and Philippines following the appointment of renowned and established distributors in both countries.

In China, the group is seeking for more potential new distributors and retailers to accelerate its market penetration, given the huge untapped market in the country.

Risks

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

Forecasts

Unchanged for now pending further clarification from management during analyst briefing, to be held on 4 Sept 2014.

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 HOLD with unchanged TP of RM2.29 based on unchanged 17x P/E on FY15 EPS.

Source: Hong Leong Investment Bank Research - 28 Aug 2014