Period  3Q14/ 9M14

Actual vs. Expectations OLDTOWN recorded 3Q14 net profit of RM13.4m (+18.0% QoQ, +39.2% YoY) which brought its 9M14 NP to RM37.0m (11.3% YoY).

 The results were in-line with our expectations, at 76.2% of full year forecasts. However, it fell short of the consensus estimates at just 69.3% of the respective numbers.

Dividends  As expected, an interim single-tier dividend of 3 sen was declared for the quarter.

Key Result Highlights YoY, the 3Q14 revenue was up by 14.5% with growth led by the beverage manufacturing (BM) segment (+36.2%) in contrast to the flat growth (+0.0%) from its Cafe Chain Operations (CC) segment. Nevertheless, overall PBT rose by 40.2% YoY with the improvement coming from both the BM segment (+76.8%) and the CC segment (+8.0%). In

particular, the BM Segment benefited from the profit contribution from the newly acquired foreign subsidiary, which is the sole distributor of Oldtown beverage products in Hong Kong. Meanwhile, the CC segment registered PBT growth, although this was primarily a result of RM2.0m in goodwill written off the year earlier (3Q13).

 QoQ, 3Q14 revenue increased slightly by 5.7% while NP increased by 18.0%. While revenue from both the CC segment (+5.4% QoQ) and the BM segment (+6.0%) grew at a similar pace, PBT from the BM segment declined on a QoQ basis (-5.5%) due to higher selling and distribution expenses during the quarter. However, this was more than compensated by a strong PBT growth from the CC segment (+83.8% QoQ) due to the trickle down effect from revenue growth, in addition to the lower advertising and promotion fees charged out.

 YTD, 9M14 revenue grew by 12.1% while NP grew 11.3%. This came as a result of the strong revenue and PBT growth from the BM segment (+27.3% and +48.0%, respectively), which was able to offset the weaker revenue and PBT from the CC segment (+1.6% and -14.6%, respectively) after the latter was affected by : (i) higher operating costs attributable to minimum wage ruling for foreign workers, (ii) nonrecurring other gains of RM0.8m in 9M13, (iii) higher advertising and promotional fees charged out, and (iv) higher selling and distribution expenses, mainly on advertising costs incurred by its foreign cafe chain operation.

Outlook  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 the relatively untapped markets in China, South Korea and Vietnam, and (ii) possible opening of more outlets in Malaysia, Singapore, Indonesia and China.

Change to Forecasts No changes to our FY14E-FY15E net profit of RM48.5m-RM61.2m.

Rating Maintain MARKET PERFORM.

Valuation  We maintain our TP at RM2.14 based on an unchanged 16.7x PER over CY14E EPS.

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

Source: Kenanga