Results

Results

• Below Expectations – Reported 1QFY16 PATAMI of RM9.5m came in below expectations, accounting for 19.1% and 18.4% of ours and consensus estimates.

Deviations

• Weaker contributions from café outlets.

Dividends

• None.

Highlights

• Café outlet: revenue declined by 24.17% qoq on the back of lower number of outlets (245 outlets in 4Q15 vs. 241 outlets in 1Q16) and 23% decline in revenue per outlet. This could be attributed to lower patronage of outlets by consumers on the back of GST implementation and record low consumer sentiment during the period. Consequently, segment PBT of RM4.46m shows a contraction of 9.5% qoq.

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

• The group has also signed an exclusive agreement with “Select Service Partners”, an International Food and Beverage specialist for airports and transportation hubs. This agreement was signed to develop OldTown White Coffee Café outlets in transport hubs throughout the Asia Pacific region.

• FMCG: FMCG’s PBT experienced an increase of 29% yoy, mainly attributed to higher local sales generated during the period. Qoq, despite segment revenues increasing by circa 9%, PBT experienced a marginal increase of 1.3% on the back of higher selling and distribution costs incurred during the period.

Risks

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

Forecasts

• Unchanged pending more information 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. Unchanged TP of RM1.87 based on 17.5x FY03/16 EPS.

Source: Hong Leong Investment Bank Research - 28 Aug 2015