News

In an announcement to Bursa Malaysia, OLDTOWN has entered into a conditional Share Sale Agreement to acquire the remaining 30.0% equity interest in ACL for a total purchase consideration of RM15.5m. 

ACL is principally involved in the trading and distribution of coffee products in Hong Kong, Macau and Guangdong, PRC.

The purchase is to be fully satisfied via the issuance of 9,641,859 new ordinary shares of RM1.00 each in Oldtown at an issue price of RM1.61 per Oldtown Share. The exercise is expected to be completed by end 3QCY15.

Comments

The acquisition price translates into 7.7x FY15 PER based on the latest audited account, which we think is value accretive to OLDTOWN as it is currently trading at 14.7x FY15 PER. The acquisition will allow OLDTOWN to take complete control of the distribution entity as well as fully consolidate ACL’s earnings from only 70% currently. The additional stake could enhance its FY15 earnings by RM2m or 3.9%. However, we are neutral on the deal as we expect the extra earnings from full consolidation to be offset by the dilution as a result of the issuance of new shares representing 2.1% of the existing share base. 

Outlook

FMCG division is expected to spearhead the earnings growth moving forward as we are expecting sales growth of 14.6% in FY16, supported by its dominant position in key markets, including Singapore, Hong Kong and Malaysia as well as the normalization of export sales.

Worth noticing, the contribution of MB division to group PBT has grown to 56% in FY15 from 45% in FY12 while we forecast the contribution to further expand to 60% in FY16 with the sales normalization and margin expansion. As such, we believe investors should angle OLDTOWN as a growing FMCG play, which can offset the earnings volatility risk of the more challenging retail F&B sector.

Forecast

We make no changes to our earnings forecast pending the completion of the transaction. 

Rating

Maintain OUTPERFORM

Valuation

Maintain our TP of RM1.79, based on 14.1x FY16E, which is slightly below -0.5SD over 3-year mean.

Risks to Our Call

• Weaker-than-expected consumer sentiment.

• Weaker-than-expected export sales.