Results

• Below Expectations – Reported 1HFY15 PATAMI of RM23.0m came in below expectations, accounting for only 42.0% and 42.9% of ours and streets’ full year forecasts.

Deviations

• Weaker-than-expected contribution from FMCG segment.

Highlights

Café outlet: YTD Revenue grew marginally by 3.8% yoy on the back of higher number of outlets, which was able to offset the declining revenue per outlet of 3.9% yoy. PBT grew slightly more than revenue thanks to lower advertising and promotional expenses.

Oldtown has a total of 245 café outlets as at Sept 14, representing an additional 18 outlets in total compared to 1HFY13. The group’s outlet opening targets remained unchanged and its first outlet in Australia is scheduled to be opened in 1QCY15.

China’s contribution to the group remained insignificant but we are expecting better prospects in the country once Oldtown completed its realignment of business direction.

FMCG: FMCG’s YTD PBT fell further (-7.1%) ahead of its revenue (-1.0%) as the group incurred higher selling and distribution expenses on the back its already lower export sales. W e believe the heavy expenses were spent on its activities in Hong Kong and China.

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

The capacity utilization of its new beverage manufacturing facility are still below 50% would allow ample room for Oldtown to grow its FMCG segment and cater to the rising demand for future growth over the next 5 years.

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 later today.

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 RM2.17 based on unchanged 18x P/E on FY15 EPS.

Source: Hong Leong Investment Bank Research - 27 Nov 2014