What’s New

• Jacobs Douwe Egberts Holdings Asia NL. B.V (JDE) has made a pre-conditional cash offer for all the issued ordinary shares of OldTown (the Group) at RM3.18/share or a total consideration of approximately RM1.47 billion.

• The offer price represents 10.42% premium over the last transacted price on 7 December 2017.

• JDE is a global coffee & tea company, serving consumers in more than 120 countries through iconic brands including: Jacobs, Tassimo, Moccona, Senseo, L’OR, Douwe Egberts, Super, Kenco, Pilao & Gevalia.

• Majority shareholders (representing approximately 51% of issued shares) have undertaken to tender all their shares in acceptance of the offer.

Comment

• Expanding Global Coffee Empire. We believe that the offer is part of JDE’s global coffee strategy, since JDE’s lack of presence in Southern Asia. This would be its second deal in Asia this year, after its acquisition of Singapore Based Super Group.

• Offered practice deemed reasonable. The offered price is fair as target PE of 22.0x which is slightly higher than the consensus PE of 20.6x. Therefore, we think the implied 22.0x PE is an attractive offer. The offer price at target PE of 22.0x is higher compared with Power Root Berhad (smaller-size beverage manufacturer with estimated PAT of RM33.6m for FY2018F) current valuation of 18.0X forward PE.

• Risks include the Pre-conditions of the offer on or before 11 August 2018: 1) filling been made to and accepted by the Competition Commission of Singapore, 2) Anti-trust Authorisations having been obtained in terms from all relevant Anti-Trust Authorities. Failing to meet these conditions could see the deal being cancelled and share price revert back.

Valuation & Recommendation

• Maintain HOLD with a higher target price of RM3.18, (previous target price of RM2.52) after applying a higher PE. Our revised target price is now pegged at 22x following based on EPS 14.4 sen following the offered price being reviewed by JDE.
• Therefore, we view the conditional offer positively and believe minority shareholders should accept the offer.

Source: JF Apex Securities Research - 12 Dec 2017