Results

• Above expectations – 9M17 PATAMI of RM42.4m (+48% yoy) came in above our but in-line with consensus expectations, accounting for 82% and 73% of full year estimates, respectively.

Dividend

• Declared a dividend of 3 sen

Deviations

• Higher than expected FMCG export sales which grew 35% yoy buoyed by strong growth in China.

Highlights

• Qoq: PATAMI grew 73% qoq to RM19.1m mainly due to seasonality and stronger than expected FMCG export sales, particularly in China. Double 11 day in China on 11/11 is annually the biggest sales event on Taobao and Tmall e- commerce portals in China.
• Yoy: 9M17 core PATAMI rose 48.0% yoy to RM42.4m due to higher FMCG export sales as the group continues to increase its market share in a lucrative China market as well as benefiting from weaker Ringgit in 9M17 vs. SPLY.
• Café outlet: Café operations showed marginal growth despite the number of outlets reducing to 234 in 9M17 from 245 in 9M16. Encouragingly, domestic outlets showed a 3% same- store-sales growth. Additionally, outlet openings in China and Hong Kong have also added to revenue.
• FMCG: 9M17 revenue grew 19.6% yoy to RM146m buoyed by strong export sales which grew 35% yoy. FMCG export sales currently account for 65% of total FMCG sales vs 57% in SPLY. The group recorded strong 9M17 yoy growth in China (+43%), SEA ex-Malaysia (+14%) & Others (+31%) while domestic sales slumped marginally by 1%. China (45% of total FMCG sales) has now eclipsed Malaysia (35%) as the FMCG segment’s biggest sales contributor.
• We expect OldTown to continue to make headway in Asia (ASEAN, China and Taiwan) to exploit the region’s enormous potential and growing middle class amongst the urban population.

Risks

• Relatively elastic demand.
• Rising raw material prices.
• Occurrence of Ringgit strengthening would impact exports.

Forecasts

• We upgrade FY17/18/19 PATAMI by 10%/12%/8% to account for accelerating contributions from China FMCG export sales.

Rating

(BUY ↔; TP 2.36)

• While Oldtown’s domestic café and FMCG sales remain stagnant, FMCG exports are accelerating at a rapid pace which will provide significant revenue contributions for the group going forward.

Valuation

• Maintain our BUY call with a higher TP of RM2.36 based on a P/E multiple of 17x on FY18 EPS after adjusting for our EPS upgrade.

Source: Hong Leong Investment Bank Research - 23 Feb 2017