Period     4Q13/FY13

Actual vs.  Expectations   The FY13 (12-month) net profit (NP) of RM44.9m was  in line with our forecast of RM45.3m, making up 99.1% of the number. It was, however, below the consensus estimate of RM50m but this could be because some of the estimates making up the overall consensus number could be for a 15-month period instead of the normal 12 months and hence, is not a major concern. 

Dividends    A final single-tier dividend of 3 sen was declared during the quarter, bringing the total dividend to 9 sen, which was 38% higher than our expectation of 6.5 sen and translating into a div. yield of 2.9%.

Key Result Highlights    QoQ, the 4Q13 revenue was pretty flat with only a 0.5% growth given the similar lower growth rates of 0.3% and 1.1% from its operation of café chain (“OCC”) and manufacturing of beverage (“MB”) segments respectively. However, the PBT improved by 21.1% QoQ buoyed by the better margins from both the OCC (+17.1 QoQ) and MB (+23.7 QoQ) segments. The 4Q13 NP margin also increased by 2.2ppt due mainly to the absent of a goodwill write-off at the OCC segment and lower marketing expenses from MB. Stripping off the one-off items, the PBT for the quarter should have registered a 5.1% growth QoQ. 

YoY, the 4Q13 revenue improved 15.0% YoY on the back of better sales from OCC (+10.4%) and MB (+22.5%). However, the PBT and NP were only 1.5% and 2.2% higher. The lower earnings growth was mainly due to higher operating expenses, where the cost-to-revenue ratio was 27.1% in the quarter as compared to 16.2% previously. 

YTD, the FY13 revenue jumped by 16.1% YoY owing to the better OCC and MB revenues (+11.1% and +24.7% respectively). However, the NP overall registered flat growth due to the absent of the higher one-off gains, higher operating expenses (the cost-to-revenue ratio was at 20.4% vs. 19.4% previously) and a higher tax bracket of 25.3% vs. 22.6% for FY12. After the adjustment of the one-off items, the PBT actually increased at a healthy double-digit growth rate of 19.4% YoY. 

Outlook    Oldtown’s prospects remain positive backed by two key drivers i.e. (1) the strong growth of its FMCG segment, which is expected to be boosted by its growing regional market share, including that of untapped markets in China, South Korea and Vietnam and (2) the likely opening of more outlets in Malaysia, Singapore, Indonesia and China.

Change to Forecasts     We are maintaining our FY14-15E net profits of RM53.8mRM65.4m.

Rating  Downgraded to UNDERPERFORM

Valuation    We are maintaining our TP at RM2.53 based on a PER of 17.1x over its FY14 EPS. We are, however, downgrading the stock from a MARKET PERFORM to an UNDERPERFORM rating due to (1) its rich valuation even as the market interest has turned to higher beta stocks and (2) the fact that the stock is currently trading at a fwd. PER of 20.7x, which is 83% higher than that a year ago of 11.3x and even higher than its +2SD PER level of 19.6x. (see overleaf for details) spending, which will consequently affect the company’s earnings prospects.

Risks    Global economic uncertainty may impact consumer 

Source: Kenanga