Period  3Q15/9M15

Actual vs. Expectations  Reported 9M15 net profit of RM37.3m (+0.9%) was within both our and consensus’ expectations by meeting 72%and 73% of the forecasts, respectively.

Dividends  DPS of 3 sen was declared (vs 9M15: 3 sen), in line with our estimates. We expect 7 sen of DPS in total for FY15.

Key Results Highlights  YoY, 9M15 revenue rose marginally by 1.9% to RM292.6m, driven by the manufacturing of beverages (MB) division, which recorded growth of 3.1% thanks to higher sales in export. Meanwhile, group PBT was flattish at RM49.8m with operation of café chain (CC) registering 0.3% lower PBT contribution while MB’s segmental PBT was higher by 1.3% at RM29m.

 QoQ, 3Q15 revenue rose 12.4% to RM103m, mainly due to the normalization and recovery in MB division, which was temporarily affected by certification and licensing issues in 2Q15, resulting in 29.8% surge in revenue. The higher revenue lifted PBT contribution of MB division by 25% to RM12.1, while group PBT rose 32.3% during the period, further aided by better performance in the CC division.

Outlook  MB division, with PBT contribution of 58% as of 9M15 is poised to be the main earnings driver, after the temporary hiccups in overseas market were resolved. Meanwhile, CC division is expected to be challenging on the back of persistent soft consumer sentiments as well as the competitive market environment.

 We maintain our cautious stance on OLDTOWN despite the resurgence in earnings as well as the robust demand in the MB division, which we think could be neutralized by the slow growth in the CC division due to the reasons mentioned above.

Change to Forecasts  No changes to earnings forecasts.

Rating Downgrade to MARKET PERFORM (from OUTPERFORM)

Valuation  We keep our TP of RM1.79 unchanged, based on 14.1x PER FY16E, which is below its 3-year mean PER. Share price rose 11.3% since our last report, closing the potential upside gap from our TP; thus warranting a rating downgrade.

Risks to Our Call  Lower-than-expected operating costs.

 Sector risks: Better-than-expected consumer sentiments 

Source: Kenanga