Results

• Above Expectations – Reported FY15 PATAMI of RM47.5m came in within expectations, accounting for 98.9% and 95.2% of ours and streets’ full year forecasts. However, if we exclude the RM3.5m one-off goodwill written off, core PATAMI of RM51m comes in at 106.25% of our estimates.

Dividends

• Declared final interim dividend of 3 sen/share, bringing FY15’s total dividends to 6 sen/share, representing a payout and yield of 56.5% and 3.7% respectively.

Highlights

• Café outlet: YTD revenue grew by 4.8% yoy on the back of higher number of outlets (238 outlets FY14 vs. 245 outlets FY15) and revenue per outlet, which grew by 1.8% in FY15. PBT of RM26.22m shows a contraction of 16% yoy due to goodwill written off of RM3.5m for the quarter. Excluding this, PBT would arrive at RM29.72m or 5.1% decline yoy.

• Management reported that the goodwill written off was on one of their acquired subsidiaries that demonstrated risk of impairment, mainly attributed to the unanticipated change in business climate as a consequent of increased competitors and lower customer patronage due to construction projects in the surrounding areas.

• Moving forward, the group plan to promote the “lower cost“ model known as OldTown White Coffee Basic domestically, with 10 new stores estimated to be launched in FY16. Singapore will follow suit with the introduction of the “Basic” concept with 3 new outlets planned for FY16.

• FMCG: FMCG’s YTD revenue grew by 3.1%, which is mainly attributed to the group maintaining its leading position in the white coffee segment domestically and improved sales from overseas market.

• The group will continue to strengthen its foothold in the ASEAN region by intensifying its marketing initiatives. Furthermore, capacity utilization of its new beverage manufacturing facility stands at circa 40%, thus, leaving ample room to grow its FMCG segment and cater to rising demand in the future.

Risks

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

Forecasts

• Unchanged pending for more information during analyst briefing on 28 May 2015.

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. Unchanged TP of RM2.00 based on 18x FY03/16 EPS.

Source: Hong Leong Investment Bank Research - 21 May 2015