MARKET PERFORM
Target Price: RM2.26

Period
2Q12/1H12

Actual vs. Expectations
The 1H12 net profit (NP) of RM23.8m was in line with the street's estimate and our forecast of RM42.9m (making up 55.5%) and RM43.9m (54.1%) respectively.

Dividends
No dividend was announced during the quarter

Key Result Highlights  

• QoQ, the 2Q12 revenue rose 11.0% on the back of higher sales contributed by both the beverage manufacturing (+19.0% QoQ) and caf'' chain (+6.1% QoQ) segments. The better sales were due to improved local and export sales of instant beverages and higher sales to franchised outlets.  
• As a result, NP also improved 7.8% QoQ despite the higher advertisement and promotion costs (selling and distribution expenses: +31.5% QoQ).  
• The 2Q12 revenue improved 28.1% YoY but the NP was, however, lower by 3.6% YoY. This was mainly due to a one-off gain on disposal of investment in associated companies of RM5.1m recorded in 1Q11.  
• Nonetheless, for 1H12, the revenue and NP YoY jumped by 26.3% and 21.2%, respectively, owing to better local and export sales as well as acquisition of new subsidiaries in May 2011 (only 1-month sales consolidated). 

Outlook

• We remain positive on the company given 1) the strong growth of its fast-moving consumer goods ('FMCG'), which is expected to be boosted by its growing regional market share, including that of the untapped markets in China, South Korea and Vietnam; and 2) its vision of opening more outlets in Malaysia, Singapore, Indonesia and China.  
• As of June 2012, the company has 206 caf'' outlets (vs. 196 in December 2011). Given the current rate of store openings, we believe that our conservative target of 25 new outlets this year is achievable with earnings likely to grow further by the opening of new stores in 2H12 to capture the festive season sales. 

Change to Forecasts
Maintain FY12-13E net profit of RM43.9m-RM51.7m.

Rating 
Downgrade to MARKET PERFORM (from OUTPERFORM)

Valuation
Given the recent trend of mergers and acquisitions (M&As) in the consumer F&B sector, the sector is likely to be under the limelight and continue to see better valuation premium. Hence, we have revised Oldtown's TP upwards to RM2.26 (from RM1.87 previously), based on a higher PER of 14.5x (vs. 12.0x previously) over its FY13 EPS of 15.6sen. The new PER represents a +2SD above the average PER since its listing (note that the stock is currently trading at a +2SD PER level over its FY12 earnings).

Risks
Global economic uncertainty may impact consumer spending, which will consequently soften the company's earnings prospects.

Source: Kenaga