Results

• In-line – 6M17 PATAMI of RM26.5m came in within our and consensus expectations, accounting for 51.3% and 47% of full year estimates, respectively.

Dividends

• Interim dividend of 3 sen per share, ex date 25 Jan 2017.

Highlights

• Qoq: PATAMI dipped 9.1% qoq to RM12.6m in 2Q17 mainly due to weaker local sales and higher selling and distribution costs in the FMCG division.

• Yoy: 6M17 PATAMI rose 16.1% yoy to RM26.51m due to higher export sales benefiting from weaker Ringgit in 6M17.

• Café outlet: Revenue of the café chain rose 3.9% yoy in 2Q17 to RM48.8m (7.2% yoy) due to more promotional campaigns launched during the quarter. PBT increased to RM4.5m (4.9% qoq) due to seasonality but fell 15.8% yoy due to higher staff costs. The number of outlets decreased by 4 stores to 237 in 1QFY17 vs SPLY.

• Higher revenue in the F&B division was in tandem with improvement in consumer sentiment which was higher yoy at 73.6pts in 3QCY16 against 70.2pts in 2QCY16.

• FMCG: 6M17 revenue registered an increase of 16% yoy attributed to higher export sales benefiting from weaker Ringgit, which more than offset local sales which slumped 6% yoy. The group continues to benefit from its forays into key markets within Asia. PBT experienced an increase of 40% yoy, whilst PBT margins expanded to 25.5% from 21.2% in 6M16 due to weaker Ringgit. All exports (apart from Singapore) are denominated in USD and make up 62% of total FMCG sales. (Average USD/MYR in 6M17 averaged ~RM4.02 against ~RM3.85 in 6M16)

• We expect OldTown to continue to make headway in Asia (ASEAN, PROC and Taiwan) to exploit the regions enormous potential and growing middle class amongst the urban population.

• Effective 25/11/16, Old Town Bhd is no longer a Shariah compliant counter. The exclusion could possibly arise from the large amount of cash assets currently held by the group which are insufficiently parked in Shariah-compliant deposit products. As of 2Q17, the group has a net cash position of RM174m or 38 sen/share.

Risks

• Relatively elastic demand.

• Rising raw material prices.

• Occurrence of Ringgit strengthening would impact exports.

Forecasts

• Unchanged pending analyst briefing later today.

Rating

(HOLD; TP 2.09)

• OldTown poses a loyal customer base domestically, exemplified by its status at the market leader in white coffee. Its foray into ASEAN and PROC also provide potential room for growth going forward. However, escalating raw material and labour costs going forward will cause margin pressure.

Valuation

• Downgrade our call from BUY to HOLD as share price approaches our TP of RM2.09 (unchanged) based on a P/E multiple of 16.8x on FY18 EPS.

Source: Hong Leong Investment Bank Research - 25 Nov 2016