Results

• Above Expectations – Reported FY16 PATAMI of RM52.3m came in above expectations, accounting for 120% and 111% of ours and consensus estimates.

Dividends

• Declared a final dividend of 3 sen/share and a special dividend of 3 sen/share bringing total dividends to 9 sen/share, representing a payout of 77.5% and yield of 6.25%.

Deviations

• Stronger than expected results from their FMCG business.

Highlights

• Café outlet: FY16 revenues declined by 10.6% yoy on the back of lower patronage by consumers in their domestic café chains and intense competition in the domestic F&B space. Subsequently, PBT declined by 22.3% yoy.

• The number of outlets remained flat (Avg. 244 outlets in FY15 vs. Avg. 245 outlets in FY16). Revenue per outlet declined by circa 10.3% yoy. Gross margins declined 1.68ppts yoy subsequently.

• The group intends to focus on their ‘lower cost stores’ throughout FY17 domestically, whilst Singapore is expected to follow suit with the introduction of the “Basic” concept stores. We expect margins from the F&B segment to remain pressured as long as consumer sentiment remains low.

• FMCG: FY16 revenue registered an increase of 10.4% yoy attributed to higher sales generated during the period domestically as well as abroad. It’s reaping the benefits its forays into key markets within the Asia region coupled with aggressive marketing online media, e-commerce portal and social networks channels.

• Automation at its factory has also enhanced productivity and efficiency, PBT experienced an increase of 24.8% yoy, whilst margins expanded by 2.75ppts yoy.

• OldTown will remain focused on its core Asian markets in view of the regions enormous potential and growing middle class amongst the urban population. Furthermore, its capacity utilization still stands at circa 40% as such there is ample room to cater for the growing demand for its products.

Risks

• Relatively elastic demand.
• Quality of food and services.
• Low consumer sentiment in the primary domestic market.
• Rising raw material prices.

Forecasts

• Unchanged pending analyst briefing later today.

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 jeopardize group’s sales and earnings.

Valuation

Maintain TP of RM1.53 pegged to unchanged P/E multiple of 15.1x based on FY3/17 EPS or circa 20% discount to regional peers’ average of 20.5x (which are much larger in terms of market cap). Maintain HOLD.

Source: Hong Leong Investment Bank Research - 27 May 2016