Results

• OldTown’s 3QFY17 net earnings stood at RM24.35mil, surged 92.9% q-o-q and 120% y-o-y. Meanwhile, 3QFY17 revenue was recorded at RM115.81mil, rising 16.3% q-o-q and 13.3% y-o-y.
   
• For 9MFY17, net profit was registered at RM50.86mil, increased by 49.97% y-o-y. Similarly, revenue rose by 10.2% y-o-y to RM318.24mil.
   
• Above expectations. 9MFY17 net profit was above expectations by accounting for 87% and 88% of our full year earnings forecast and market consensus respectively thanks to resilient growth in FMCG segment as well as the continued slow recovery from F&B segment for this quarter.

Comment

• Stronger 9MFY17 earnings propelled by FMCG. The Group’s 9MFY17 net profit posted a stronger growth amid higher topline as the resilient performance of FMCG continued while better recovery results recorded by F&B segment in 3QFY17. As a result, the Group’s 9MFY17 PBT increased by 42.12% to RM67.61mil from RM47.57mil a year ago.

• F&B remained lacklustre for 9MFY17 and yearly basis…. The segment recorded a lower PBT at RM14.9mil, down 9% mainly attributed by higher staff costs and deprecation in this quarter. Likewise, PBT for 3QFY17 decreased by 7.6% y-o-y.

• ……but managed to perform well on quarterly basis. Nevertheless, F&B’s PBT in 3QFY17 expanded by 32.8% q-o-q and in line despite slight increase in revenue of 1% q-o-q. The better performance attributable to slight improvement of sales in conjunction with festive seasons in last quarter, i.e. Christmas and Chinese New Year. Also, better promotion for its F&B division successfully lifted the earnings of the division.

• FMCG recorded a captivating results – FMCG segment rose by 68.14% y-o-y in PBT for its 9MFY17. The consistent positive performance of the segment since 1QFY17 was mainly supported by lower selling and distribution expenses and foreign exchange gains. Besides, the Group posted a whopping jump of 120% y-o-y in PBT on the back of higher sales, +26%. Similarly, for 3QFY17, the division posted a q-o-q increase for both topline and bottomline. The PBT stood at RM23.9mil which was increased by 98.4% q-o-q. The improvement was mainly due to higher export sales generated in the current quarter as well as positive impact from currency movement due to strengthening USD against Ringgit.
   
• Consistent development plans. The Group’s cafe chain strategy in Malaysia remains in place amid prevailing challenging market conditions with the ever-increasing pressures of the rising cost of doing business. As for China market, the Group is optimistic on the growth potential of the café chain business in view of the country’s large population base and growing disposable income. The Group continues to seek new business partners for licensing activities. In addition, Kopitiam Asia Pacific Sdn Bhd has also entered into a Licensing Agreement with Nikmat Mujur Sdn Bhd to develop Oldtown White Coffee Outlets in Yangon, Myanmar recently, and the first outlet is expected to commence operations in the first quarter of FY18. Meanwhile, for its FMCG, the Group will continue to invest in that segment in order to maintain its brand competitiveness in the domestic and international markets as well as gain consumer insight to further satisfy their needs.

Earnings Outlook/Revision

• We revise upward our earnings forecast for FY17- FY18F by 12% and 4.4% respectively following the encouraging performance recorded in this quarter and to take into account the higher-than-expected export sales and better margins.

Valuation & Recommendation

• Maintain BUY with a higher target price of RM2.29 (Previous: RM2.21) based on 15x FY18 EPS forecast of 15.3 sen as we rolled over our valuation to FY18. Our target PE valuation is at 3 years mean PER.
   
• We reckon that overall earnings growth will continue to be supported by ongoing marketing activities to strengthen the “OLDTOWN” brand name. In addition, we opine that the launch of its café chain in Yangon, Myanmar will underpin the earnings growth in FY18 onwards. We envisage that its FMCG segment will continue to perform well as the Group will increase its productivity & efficiency, and enhancement of internal operational process to maintain its commanding position in the white coffee segment in Malaysia.

Source: JF Apex Securities Research - 23 Feb 2017