Highlights

• Oldtown announced it has received a pre-conditional cash offer for all issued ordinary shares of at RM3.18 per share (10.4% premium over the last transacted price of RM2.88) from Jacobs Douwe Egberts Holdings (JDE), subject to satisfaction of certain pre-conditions. This amounts to a total cash offer of approximately RM1.47bn.

• The offer will not be made unless the pre-conditions (mainly to do with administrative filings) are fulfilled before 11 August 2018.

• The offer is conditional on JDE receiving over 50% of shares. As of 11 Dec 2107, Oldtown International, Lee Siew Heng and Mawer Investment who cumulatively hold 51.45% of the total issued share capital fully support the transaction and have irrevocably undertaken to tender all of their shares in acceptance of the offer.

• JDE intends to delist and privatize Oldtown. JDE is required to cumulatively hold over 90% of all shares to delist Oldtown from Bursa’s Main Market.

• JDE is a private company incorporated in Netherlands which has global coffee & tea company serving consumers in over 120 countries with brands such as Jacobs, Tassimo, Moccona and more.

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

• Outlook: We expect Oldtown’s FMCG exports (particularly to China) to be the main growth driver for Oldtown going forward. However, we expect earnings from Oldtown’s café business to remain flat as international ventures (recently signed Area Licensing Agreements in select areas of SEA and China) and low cost on-the-go outlets domestically are still in early stages.

Risks

• JDE being unable to accumulate over 90% of all outstanding shares.

• JDE deciding not to go through with the offer.

Forecasts

• Unchanged.

Rating

(BUY ↔ ; TP 3.18)

• The offer price of RM3.18 per share is approximately 18.6x of our estimated FY19 EPS and thus represents good value for investors. The offer price of RM3.18 is 9% above our estimated fair value of RM2.91 per share. We advise minorities to accept the offer made by JDE.

Valuation

• We raise our TP to RM3.18 from RM2.91 with an unchanged BUY call based on the offer price from JDE.

Source: Hong Leong Investment Bank Research - 12 Dec 2017