Highlights

• We attended Oldtown’s 1Q18 briefing and came away feeling neutral about the group’s prospects going forward.

FMCG Outlook:

• Domestic sales growth: Local FMCG sales grew strongly in 1Q18 by 15% yoy to RM22.8m which was mostly due to the timing of Hari Raya this year (26 th June 2017, 1Q18) vs last year (8 th July 2016, 2Q17). As such, we do not foresee domestic FMCG sales to repeat such strong growth in the near term.

• Decent export sales growth: We expect FMCG segment’s strong exports growth momentum to continue for the remainder of FY18 (and remain as the main driver of Oldtown’s growth), buoyed by strong Greater China sales (which accounted for 44.6% in 1Q18 up 0.6%-pt from SPLY (Figure 1). Oldtown expects Greater China sales to grow by 10-15% in FY18 vs FY17, particularly through online sales channels, which account for the bulk of its sales in Greater China.

• Outlet openings on the horizon: Following its rationalisation exercise (by closing down non-performing outlets) since 3QFY16 (in view of the declining F&B revenue/outlet, see Figure 2), the group is exploring the possibility of a low cost concept F&B outlet which will focus on high volumes and low priced products.

• Since the expansion of the café division to Hong Kong, Jiangsu Province, Shanghai, Fujian (China) and Myanmar late last year and early 2017, the group is planning to secure more licensing agreements in other parts of the SEA region, with talks to enter Cambodia are already in motion.

Risks

• Rising raw material prices.

• Occurrence of Ringgit strengthening would impact exports.

Forecasts

• Maintained.

Rating

(HOLD ↔ ; TP 2.75)

• Oldtown’s FMCG exports to China are on track. The signing of Area Licensing Agreements across SEA and some regions of China will not have an immediate significant impact on short term earnings but could provide and avenue for growth in the long term.

Valuation

• Maintain our HOLD call with unchanged TP of RM2.75 based on a P/E multiple of 17x on FY19 EPS.

Source: Hong Leong Investment Bank Research - 28 Aug 2017