OldTown’s  1HFY15  earnings  of  MYR23m  (-2.6%  YoY)  were  within  our full-year net profit  forecast.  Maintain BUY with a revised TP of MYR2.00 (FY16  P/E  of  16x,  a  21.2%  upside)  after  we  trim  our  FY16  earnings forecast.  Its  FMCG  arm  was  the  saving  grace  for  the  quarter  under review,  with PBT up  36.1%  QoQ,  mitigating  the  34.2%  QoQ PBT declineat the F&B division. 

In line.  OldTown’s 1HFY15  (Mar)  earnings of MYR23m  were within our but  below  consensus  estimates,  reaching  46.7%  and  42.9%  of  the respective FY15 earnings forecasts. 1HFY15 earnings slipped 2.6% YoY on the back of flattish sales from both its  food and beverage (F&B)  and fast-moving  consumer  goods  (FMCG)  divisions  as  well  as  higher operating costs.  Although  2QFY15 revenue  fell  6.3% QoQ, earnings slid by  a  lower  quantum  of  3.8%,  as  higher  earnings contributions  from  its FMCG  arm  mitigated  the  decline  in  earnings contribution  from  its  F&B division. No dividend was declared for the quarter under review. 

Counting on its FMCG arm.  Although 2QFY15  sales from its F&B arm declined  by  7%  QoQ,  the  division’s  PBT  contracted  34%  QoQ  due  to negative  operating  leverage  from  lower  sales.  Its  FMCG  arm  was  the saving grace for the quarter under review  with segment  PBT  up  36.1% QoQ  despite  a  5.3%  drop  in  sales,  driven  by  lower  selling  and distribution expenses incurred vs the preceding quarter. 

Forecasts. As the results were in line, we make no changes to our FY15 earnings  forecast.  In  view  of  intensified  competition  among  the  F&B operators  as  well  as  in  the  FMCG  market,  we  trim  our  FY16  earnings forecast  by 6.3%  after updating our sales and margin assumptions. We also take the opportunity to introduce our FY17 projection. Key risks to our recommendation are:  i) weaker-than-expected consumer sentiment, ii) a change in consumer preference, and iii) rising raw material prices. 

Maintain  BUY  with  a  revised  TP  of  MYR2.00.  We  trim  our  TP  to MYR2.00  (from  MYR2.15)  by  pegging  its  revised  FY16  EPS  to  an unchanged P/E of 16x. However, we are positive that OldTown will be able  to  reap  the  fruits  of  its  efforts  in  regional  distribution  networkexpansion  next year. The stock is currently trading at an undemanding FY16 P/E of 13.1x relative to its peer target valuations of 19-22x.

Source: RHB