Investment Highlights

• F&B performance impacted by closure of local outlets

• Strategizing to boost F&B’s domestic and export sales

• FMCG segment’s growth is expected to taper down

• Reaffirm NEUTRAL stance with an unchanged TP of RM2.60

F&B performance impacted by closure of local outlets. Recall that the group’s 1HFY18 normalised earnings came in at RM28.9m after taking into account exceptional items of RM3.1m. The result lagged expectations, accounting for 43% and 41% of our and consensus’ full year FY18 earnings forecasts respectively. The weaker than expected performance was due to the slower than expected recovery of the café chain operation (F&B) as the profit before tax (PBT) dropped by -24.2%yoy to RM3.4m. This decline was mainly attributed to the lesser number of outlets in operation domestically (198 outlets at the beginning of the year vs 189 outlets as of 3QCY17) due to the group’s restructuring effort to close unprofitable outlets. Consequently, the local revenue declined by -6%yoy. While the total number of outlets only lessen by two outlets (from 234 to 232 during the same period), the segment’s performance fell as domestic outlet has the highest margin contribution.

Strategizing to boost F&B’s domestic and export sales. Despite the stiff competition in the local market, there are still untapped opportunities and due to this, the group plan to open at least eight new outlets in Q1 and Q2 2018. In addition, the group introduced ‘Oldtown On The Go’ concept as it recognise the growing demand for convenience given urban customers’ hurried lifestyle. Hence, having a convenience operating model provides reassurance of product consistency and quality to customer. The group plans to launch at least two outlets operating on this model in December 2017 while in terms of overseas markets, at least six additional outlets will be opened in Indonesia and China in the near term.

Source: MIDF Research - 4 Dec 2017