Results

• In line. 1HFY18 core PATAMI of RM31.9m (+24.2% yoy) came in within expectations, accounting for 46%-49% of consensus and our expectations respectively.

Deviations

• Broadly in line.

Dividends

• 3 sen (Ex date: 10 Jan 2018)

Highlights

• Yoy: 2QFY18 core PATAMI grew by 20.4% to RM15.2m mainly from stronger performance in the FMCG segment in spite of poorer Café chain earnings (which declined as number of café outlets reduced to 232 outlets from 238 outlets in last year).

• Qoq: Despite stronger local (+10%) and export (+5%) FMCG sales, 2QFY18 core PATAMI was lower by 9.3%% at RM15.2m (from RM16.6m), mainly due to the absence of write-back (recall in 1QFY18, Oldtown wrote back RM3.1m worth of doubtful debts for the café chain operations).

• YTD: 1HFY18 core PATAMI rose 24.2% to RM31.9m from better FMCG local and export sales as well as write back of doubtful debts in 1QFY17 mentioned above.

• FMCG: FMCG sales rose 21.7% in 1HFY18, thanks to growing sales in Greater China (+29%), Malaysia (16%), South East Asia (17%) and other regions (mostly USA/Australia/Canada)’ (+23%). We note that Greater China accounted for 42% of total FMCG sales in 1HFY18.

• Café chain: In the absence of the aforementioned RM3.1m debt write back, café chain’s PBT slumped 23.1% in 1HFY18 due to lower number of café outlets (2QFY17: 238 vs 2QFY18: 232) on the back of closure of 15 Malaysian outlets and opening of 9 outlets internationally.

• Shariah Status: As expected, Oldtown has been reclassified as a Shariah-compliant security since 24 th Nov 2017.

• Outlook: We expect Oldtown to continue to make headway in Greater China, particularly through its online sales platform to exploit the region’s enormous growth potential and growing middle class consumers among the urban population. However, stronger ringgit strength going forward should somewhat dampen export growth in ringgit terms (HLIB forecast for 2018 RM/USD: 4.00-4.20).

Risks

• Relatively elastic demand.

• Rising raw material prices.

Forecasts

• Maintain for now, pending briefing later today.

Rating

(HOLD ↔ ; TP 2.75)

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

Valuation

• Maintain our HOLD call with unchanged TP of RM2.75 based on 17x on FY19 EPS pending briefing later today.

Source: Hong Leong Investment Bank Research - 30 Nov 2017