Results

• OldTown’s 4QFY17 net profit declined by 59.3% q o-q and 46.0% y-o-y to RM9.9mil. Meanwhile, 4QFY17 revenue stood at RM106.96mil, falling 7.6% q-o-q but slightly increased by 2.3% y-o-y.

• For 12MFY17, net profit was registered at RM60.77mill, which increased by 16.26% y-o-y. Similarly, revenue surged by 8.1% y-o-y to RM425.2mill.

• Below expectations. 12MFY17 net profit was below expectations by accounting for 92.5% and 93.1% of our full year earnings forecast and market consensus respectively mainly due to one-off provision of doubtful debts in relation to the overdue trade receivable.

Comment

• Healthier bottomline recorded in FY17. The encouraging performance posted by FMCG division in FY17 supported the Group’s net profit and helped to ease some burdens on the weak F&B division. The resilient growth by FMCG segment throughout the year was mainly due to strong export growth which is in line with the direction of the Group’s plan.

• Meanwhile, the Group’s topline for FY17 recorded a positive growth, again, owing to higher revenue from FMCG division. Gradual recovery in consumer spending also contributed to the Group’s topline as evidenced by an increase in Consumer Sentiment Index, +8.3 points y-o-y in 1QCY17.

• Softer F&B performance as expected. For FY17, F&B division reported 21.46% and 1.31% decline in PBT and revenue respectively. The decline in sales was significant in February 2017 after the Chinese New Year which dragged down the 12M performance. Furthermore, the sales trend for FY2017 was rather inconsistent due to outlet closure and store relocation. Although sales recovered slightly in March 2017, it still failed to reach a breakeven.

• The same applies to quarterly basis. The F&B division recorded lower revenue, declining by 3.05% q-o-q mainly due to lower sales achieved during this quarter, registering the second lowest sales period for the whole financial year. Meanwhile, PBT fell 81.85% q-o-q to RM1.095 million with PBT margin declined by 9.95ppts. PBT declined due to provision of doubtful debts in relation to the overdue trade receivable amounted to RM4.76 million.

• FMCG performed well. Under FMCG segment during 12MFY17, the division managed to expand by 32.67% y-o y in its PBT. The positive growth was backed by higher export sales and foreign exchange gains. This was also contributed by higher revenue which grew 17.22% to RM233.775 million. The export revenue rose by 30% helped to mitigate the downfall of Malaysia modern trade.

• Meanwhile, for 4QFY17, the division posted a PBT of RM11.5mil, recording a decrease of 51.8% q-o-q, mainly due to the higher selling and distribution expenses. In addition, the segment’s revenue growth declined by 11% q-o-q.

• Better outlook. As for the F&B division, the Group has progressively established its brand name in various countries and the key markets that they intend to focus on, for the short to mid-term, would be China as well as Indochina markets. Management also highlighted that they will be looking at the Middle East (Halal) markets for future growth. Meanwhile, the Group will continue focusing on product quality as well as increasing capital expenditure for the manufacturing facilities particularly in the automation project to improve operational efficiency and cost savings.

• Proposed special and interim dividends. The Group has proposed a final single tier dividend of 1.0 sen per share and a special single tier dividend of 3.0 sen per share in respect of FY17.

Earnings Outlook/Revision

• We maintain our earnings forecast for FY18F. Also, we take this opportunity to introduce our earnings forecast for FY19F, which implies a net profit growth of 3.8% y-o-y. We reckon that its FMCG division will continue to perform well in the future, supported by strong marketing strategies as well as expansion plan in its export market, especially in China.

Valuation & Recommendation

• Downgrade to HOLD from BUY with a higher target price of RM2.83 (previous: RM2.29) based on 19x FY18 PE (+2std deviation).

• Fully valued. Despite maintaining our positive view on the Group’s FMCG division as underpinned by the management’s efforts to strengthen its presence in local and overseas markets for its white coffee branding, we think that the share price has priced in all the positive factors with current steep valuation.

Source: JF Apex Securities Research - 26 May 2017