Oldtown (OTB)’s 1HFY14 results were largely within consensus and our expectations.  Going forward, we believe the additional capacity coming from its new FMCG plant will spur growth. The group also proposed a 1-for-4 bonus issue. Maintain BUY, with a FV of RM2.90.

• Within estimates. Oldtown (OTB)’s sales in 1HFY14 rose by 10.8% y-oy, mainly due to  stronger revenue growth from  its fast-moving consumer goods (FMCG, +22.8% y-o-y)  and  food and beverage  (F&B,  +2.4%  y-oy)  units.  Core  net  profit  (excluding  a  MYR1.6m  gain  from realised and unrealised disposal of property, plant and equipment, and fair value and foreign  exchange  in  1HFY13)  trended  higher  by  7.1%  y-o-y,  lifted  by better FMCG PBT.  PBT  from its FMCG  unit surged  35.2% y-o-y on  the healthy  topline  and  five  months’  profit  contribution  from  the  newlyacquired  Hong  Kong  subsidiary,  Advance  City  Ltd.  Its  F&B  segment recorded softer PBT (-24.3% y-o-y) despite better turnover, no thanks to:i) higher operating costs arising from  the  minimum wage implementation for foreign workers, and ii) costlier advertising and promotion fees  from various  activities,  eg  its  halal  campaign.  Vis-à-vis  2QFY13,  2QFY14’s revenue  and  core  earnings  increased  by  14.8%  and  4.9%  y-o-y respectively,  given the solid sales growth from  the  FMCG (+32.4%) and F&B (+2.4%) segments.
• Softer  margins.  The  group’s  PBT  margin  moderated  to  16.7%  from 18.7% in 1HFY13  while  its  net margin declined to 12.6% from 13.1% in 1HFY13,  due to weaker margins from the F&B business  (13% vs 17.6% y-o-y) as a result of higher operating costs.
• FMCG to drive future growth.  OTB’s  new  FMCG plant  is expected  to boost its annual capacity to 24k tonnes from 8k tonnes in 2012  upon  full production. The enlarged capacity will allow the group to cater to rising demand  over  the  next  five  years.  OTB  is  searching  for  more  potential new distributors and retailers in different countries to enlarge its regional market presence and grow export sales.
• Maintain  BUY. We maintain our numbers given the in-line results.  Our FV of  MYR2.90  (ex-bonus FV:  MYR2.32)  is  based on 18x CY14 EPS.We are expecting a stronger 2H, driven by its FMCG capacity expansion. Maintain BUY.

1-for-4 Bonus Issue
Goodies  for  shareholders.  OTB  also  proposed  a  1-for-4  bonus  issue  of  up  to 90.75m  bonus  shares,  which  will  enlarge  its  current  share  base  to   453.8m  from 363m.  The  bonus  issue  will  be  wholly-capitalised  from  the  group’s  share  premium and retained earnings account. We are positive on the proposal,  as the bonus issue will improve trading liquidity. The theoretical ex-bonus FV is MYR2.32.

Financial Exhibits

SWOT Analysis

Company Profile
Oldtown produces and sells white coffee products to households and food service industries. The company is also a provider of milk tea and roasted coffee powder products.

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Source: RHB