Oriental Kopi Holdings Berhad (KOPI: 0338) growth within Malaysia's food and beverage (F&B) industry has been unrelenting, with a dual business model encompassing cafe chain operations and the distribution and retail of packaged foods. About 50% of the IPO proceeds is allocated for expansion as the company anticipates strong growth going forward. As such, we project net earnings of RM62.9m and RM80.1m for FY9/25 and FY9/26. BUY with a FV of RM0.72 based on a PER of 18x (regional consumer food and F&B retail sector average) over FY9/26 EPS.

The company's cafe chain, Oriental Kopi is targeting at the mass market and currently operates 19 cafes across Malaysia and one in Singapore. The packaged food segment with high scalability potential, offers Halal-certified products, including coffee, tea, pastries, cooking pastes, instant noodles, and seasonal items like mooncakes. These products are sold through various channels, such as the company’s cafes, specialty retail stores, e-commerce platforms like Shopee and Lazada, and resellers, including supermarkets and minimarkets.

KOPI aims to expand its footprint by opening 14 new cafes in Malaysia by 2026 with a centralized head office, integrated kitchen and warehouse. With an average payback period of 10-12 months per outlet, the company is well-positioned to generate robust cash flow to fuel future growth.

It also intends to grow its packaged foods segment by launching new product lines, expanding reseller networks, and opening four specialty retail stores. Internationally, the company plans to explore joint ventures, master franchises, and franchise models to penetrate foreign markets and partnerships with resellers to reach underserved markets. This strategy is complemented by the company's focus on international growth, as evidenced by its joint venture with Paradise Group to establish its first overseas café in Singapore.

The company has a dividend policy of a 30% payout ratio, and we expect KOPI to pay 0.9sen and 1.2sen for FY9/25 and FY9/26, translating into yields of between 2.1% and 2.7%. The company’s solid net cash position ensures its balance sheet remains strong post-IPO.

Source: Rakuten Research - 20 Jan 2025

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