OldTown’s  FY14  results  were  largely  within  consensus  and  our forecasts.  The  decent  set  of  numbers  was  mainly  supported  by  the encouraging growth in its FMCG segment. A single-tier final dividend of 3 sen per share was declared. Maintain BUY, with a new FV of MYR2.42 (from MYR2.32) as we roll over our valuation to CY15.

• FMCG  fuelled  the  growth.  OldTown’s  FY14  sales  and  core  earnings increased  by  10.9%  and  7.8%  y-o-y  respectively.  The  healthy  topline was  mainly  contributed  by  strong  revenue  growth  from  its  fast-moving consumer  goods  (FMCG,  +25.1%  y-o-y)  segment.  Sales  from  its  food and beverage (F&B) division went up marginally by 1.2% y-o-y. Core net profit  expanded  on  the  back  of  better  PBT  from  FMCG,  mitigating  the weaker PBT from its F&B business. Its FMCG unit registered a whopping 34.6% y-o-y PBT growth  due to higher sales and an eleven-month profit contribution  from  its  Hong  Kong  subsidiary.  Meanwhile,  PBT  from  its F&B  unit  dropped  by  7.2%  y-o-y  due  to  higher  operating  costs  arising from  the  implementation  of  minimum  wages  for  foreign  workers. Compared  with  4Q13,  revenue  and  core  net  profit  rose  by  7.4%  and 2.1% in 4Q14.
• Margins  dip.  OldTown’s  PBT and net margins  trended lower by 10bps and 40bps y-o-y, as  fatter  PBT margin at the FMCG unit (to 20.5% from 19.1%  in FY13)  was  offset  by  the  weaker  PBT  margin  (to  15.1%  from 16.5% in FY13) from  F&B division due to higher staff costs. A single-tier final  dividend  of  3  sen  per  share  was  proposed  this  quarter.  The  total DPS for FY14 stood at 6 sen, representing a 56% dividend payout which is similar to the previous year.
• Maintain BUY.  We are  trimming our FY15 earnings by 7.6% due to the flat  performance  from  its  F&B  segment.  Nonetheless,  we  increase  our FV  to  MYR2.42  from  MYR2.32  as  we  roll  over  our  valuation  to  CY15 (previously CY14), pegged to  a  18x historical mean P/E.  Going forward, we expect the FMCG division to drive the group’s  future  earnings. Key investment risks include volatile commodity prices and new competit ors in the white coffee segment.

Source: RHB