Period  1Q14

Actual vs. Expectations  The 1Q14 net profit (NP) of RM12.2m is broadly in line with the street and our estimates, at 23% and 24% of full-year forecasts of RM49.8m and RM53.8m, respectively.

Dividends  No dividend was declared for the quarter.

Key Result Highlights  QoQ, the 1Q14 revenue was up by only 3.2% given a 10.1% increase in sales from its beverage manufacturing (“BM”) division which helped to cushion a 1.5% QoQ decline in its café chain operations (“CC”). However, PBT declined marginally by 0.8% QoQ due mainly to a 2.6ppt margin compression in BM. The lower margin was due to higher cost and depreciation incurred from the new factory in Ipoh. Nevertheless, 1Q14 NP increased slightly by 4.2%, resulting from a lower tax bracket of 21% vs. 26% in 4Q13.

 YoY, 1Q14 revenue improved by 6.9% YoY owing to better BM and CC revenues (+13.4% and +2.5% respectively). However, overall PBT and NP registered negative growth of 4.4% YoY and 1.2% YoY due to higher one-off gains of RM1.2m in 1Q13 compared to RM0.1m in 1Q14. After the adjustment of the one-off items, the PBT and NP actually increased by 2.7% YoY and 8.6% YoY, respectively. The higher growth in NP was also due to lower tax bracket of 21% vs 25% in 4Q13.

Outlook  Oldtown’s prospects remain positive backed by two key drivers, i.e. (i) the strong growth of its FMCG segment, which is expected to be boosted by its growing regional market share, including in untapped markets in China, South Korea and Vietnam; and (ii) possible opening of more outlets in Malaysia, Singapore, Indonesia and China. We understand from the management that foreign shareholding remains unchanged at 41% as of 7 Aug 2013. As the selling pressure only started recently since 20 Aug 2013, we do not rule out the possibility that continued foreign selling may impact its share price.

Change to Forecasts  We are maintaining our FY14E-FY15E net profits of RM53.8m-RM65.4m.

Rating Upgraded to MARKET PERFORM

 Due to the recent sell down, our unchanged TP of RM2.53 now offers a potential 9.7% total return. Hence, we are upgrading our rating on OLDTOWN from UNDERPERFORM to MARKET PERFORM.

Valuation  We are maintaining our TP at RM2.53 based on a PER of 17.1x on its FY14 EPS.

Risks  Global economic uncertainty may impact consumer spending which will consequently affect the company’s earnings prospects.

Source: Kenanga