Results

• Below expectations. 9MFY18 core PATAMI of RM43.5m (-9.6% YoY) accounted for just 62-63% of our and consensus full year forecasts; respectively.

Deviations

• Higher-than-expected raw material, upkeep, selling and distribution costs.

Dividends

• None.

Highlights

• QoQ: 3QFY18 core PATAMI decreased by 23.5% from RM22.4m to RM11.6m due to higher selling and distribution expenses as well as foreign exchange losses in 3QFY18.
• YoY: 3QFY18 core PATAMI dived 48.2% to RM11.6m due to lower revenue, higher staff cost in the Café chain division, foreign exchange loss (RM1.9m loss in 3QFY18 vs RM3.3m gain in 3QFY17), higher commodity, upkeep and selling expenses in the FMCG division.
• YTD: 9MFY18 core PATAMI declined 9.6% to RM43.5m from RM48.1m as a result of increased raw material cost from higher commodity prices, upkeep expenses, selling and distribut ion costs in addition to foreign exchange losses of RM3.9m in 9MFY18 vs RM5.5m gain in 9MFY17.
• Privatization: Shareholders of Oldtown have received a voluntary offer to be taken private by Jacobs Douwe Egberts (JDE) for RM3.18/share. Investors have until end of 13/3/18 to accept the offer.
• 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 US$/RM: 4.00-4.20).

Risks

• Relatively elastic demand.
• Rising raw material prices.

Forecasts

• Unchanged.

Rating

(HOLD ↓ ; TP: RM3.18)

• The offer price of RM3.18/share is 18.6x of our estimated FY19 EPS and thus represents good value for investors. We advise minorities to accept the offer.

Valuation

• We downgrade our call from a BUY to a HOLD as the share price has moved towards the offer price. TP unchanged at RM3.18.

Source: Hong Leong Investment Bank Research - 28 Feb 2018