• Business profile: The business activities of OLDTOWN can be divided into two broad categories: 1) F&B segment (i.e. Operation of Cafe Chain); and 2) Fast Moving Consumer Goods (FMCG) segment (i.e. Manufacturing of coffee, trading and other beverages). As at 30 September 2015, the Group has a total of 242 café outlets; 210 in Malaysia, 9 in Singapore, 21 in Indonesia, 1 in China and 1 in Australia. In the FMCG division, about 45-50% are for exports markets.
• The F&B division and FMCG segment contributed 50% each to 1HFY16 revenue. In terms of PBT, FMCG contributed about 63% to 1HFY16 while the rest was by its F&B division.
• Institutional target price at RM1.53 or 12% upside. At RM1.37, OLDTOWN is trading at 15x FY16 P/E, which is 46% lower than BJFOOD’s P/E of 28x. Meanwhile, OLDTOWN is also trading at 50% discount of Breadtalk Group (Sing)’s current P/E of 30x; 17% discount to Fairwood Holdings (HK)’s P/E of 18x and 42% discount to Café de Coral (HK)’s P/E of 26x. Hence, s uch valuations have provided a sufficient margin of safety and cushion further sharp share price decline.

• On technical perspective, share price is poised to trend higher along the uptrend support line, showcased by the “Hammer” candles ticks on hourly and daily charts. A decisive breakout above RM1.42 (daily Upper Bollinger Band) will spur prices higher towards RM1.45 (38.2% FR) and RM1.52 (50% FR), with a long term objective of RM1.58.Immediate supports are at RM1.32 (30 Nov low) and RM1.30. Cut loss at RM1.27.
• Good risk to reward ratio with 15.3% upside against 7.3% downside. All in, we see a good risk to reward ratio for investor with a theoretical entry price of RM1.37 given that the downside to the cut loss zone of RM1.27 is 10 sen (- 7.3%) while the upside to the LT target of RM1.58 is 21 sen (+15.36%).

Source: Hong Leong Investment Bank Research - 1 Dec 2015