OldTown’s  9MFY14  results were  largely in line  with  consensus and our estimates.  The robust  growth of  the company’s  FMCG division was the major driver of the  strong  set  of numbers,  while  its  F&B unit continued to see margin pressure arising from higher wages.  Our  FV is adjusted to MYR2.32 ex-bonus issue. Maintain BUY.

• Decent  results.  OldTown’s  9MFY14  revenue  and  core  net  profit  grew 12.1%  and  9.9%  y-o-y  respectively,  mainly  supported  by  the  sterling growth  in  its  fast-moving  consumer  goods  (FMCG)  segment.  FMCG sales surged  27.3% y-o-y while  revenue at  its food and beverage (F&B) division  ticked up  1.6%  y-o-y. Core  earnings  expanded as the  improved PBT from FMCG offset the slight drop in PBT from its F&B unit. Note that the  core  earnings  excluded:  i)  a  MYR1.6m  gain  from  the  realised  and unrealised disposals of property, plant and equipment, and ii) impairment on fair value, foreign exchange and goodwill (MYR2m)  in  9MFY13.  PBT at OldTown’s FMCG unit surged 48% y-o-y due to a stronger topline and an additional eight months’  profit contribution from newly-acquired Hong Kong subsidiary, Advance City Ltd. The F&B unit’s PBT fell 14.6% y-o-y, mainly attributed  to:  i) higher operating costs arising from    the  minimum wage  for  foreign  workers,  ii)  a  one-off  gain  of  MYR0.79m  that  was booked  in  9MFY13,  iii)  higher  advertising  and  promotional  (A&P) expenses,  and  iv)  higher  selling  and  distribution  expenses  (mainly advertising  cost)  incurred  by  its  foreign  café  chain  operation.  Vis-à-vis 3QFY13,  its  3QFY14  revenue  and  core  earnings  trended  14.5%  and 14.8%  higher  y-o-y  respectively,  largely  bolstered  by  the  better performance from the FMCG segment.  
• Slight  margin pressure.  PBT and net margins were weaker by 10ppts and 20ppts y-o-y as the higher PBT margin  at the  FMCG  unit  (to 21.6% from 18.6% in 9MFY13) was offset  by  the lower PBT margin  (to 13.8% from 16.5% in 9MFY13) at the F&B division as a result of rising operating costs.  
• Maintain BUY. We leave our forecasts unchanged given that the results were in  line.  Our FV is adjusted to MYR2.32  (ex-bonus)  from MYR2.90. Maintain  BUY,  as  we  expect  the  new  FMCG  plant  to  boost  group earnings moving forward.

Source: RHB