RHB Investment Research Reports

Oriental Kopi - In a Sweet Spot To Chart Robust Growth

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Publish date: Fri, 10 Jan 2025, 12:13 PM
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  • MYR0.64 FV based on 20x FY25F (Sep) P/E. At MYR0.44/share, Oriental Kopi is set to raise MYR184m from its IPO - proceeds are mainly for funding its expansion plan and working capital, as well as to help in setting up a new central kitchen and warehouse. Earnings (3-year CAGR: 32.9%) should be driven by robust growth in both its café chain operations and packaged food distribution and retail divisions. KOPI's IPO price implies 13.8x FY25F P/E.
  • Building strong brand recognition. KOPI's strong appeal in Malaysia was established rapidly, and it is now focusing on the mass market by offering affordable and familiar local cuisines, primarily in mall-based locations. In just four years since its establishment in 2020, it delivered an impressive FY22-24 profit CAGR of 112%, reaching MYR43.1m from just 17 outlets with payback periods of 10-12 months - outperforming industry benchmarks. By maintaining high quality standards, expanding its brand presence, and leveraging active digital marketing, KOPI is well-positioned to further enhance its brand equity and sustain long-term growth.
  • Driving growth through expansion. KOPI is expanding its footprint with plans to open 14 new stores by FY26F, leveraging its strong brand equity and successful business model. The company plans to set up a central kitchen to optimise space, reduce costs and ensure better control over product quality across outlets. It has also ventured into international markets, with its first overseas café opened in Singapore in Nov 2024, followed by two more in 2025. The company is exploring other foreign markets, and has begun exporting its packaged food brands. We project a 3-year revenue CAGR of 30.9% for the café operations, reaching MYR585.8m by FY27F.
  • New product launches. KOPI is expanding its distribution and retail of packaged foods segment, which books higher margins (FY24 GPM: 51.9% vs 29.1% for café chain), to diversify revenue streams beyond its café operations. By leveraging distribution channels such as supermarkets, mini-markets, and health and beauty stores, it aims to reach underserved areas including small towns and rural markets. Additionally, it opened its first specialty retail store in Johor in Apr 2024 to showcase its full product range, enhance brand visibility, and capture Singapore tourist spending. The company plans to open four more stores in the central region and Johor by FY25-26. We project a 3-year revenue CAGR of 33.3% for the distribution and retail division, and expect turnover to reach MYR27.3m by FY27.
  • Riding the wave of tourism recovery. According to the Ministry of Tourism, Arts and Culture, tourist arrivals in Malaysia surged by 27% YoY to 18.4m in 9M24. As tourism continues to recover, we believe KOPI is well-positioned to cater for demand for authentic Malaysian cuisine, with strategically located outlets at airports and high-traffic mall.
  • Forecast and ratings. We project a 3-year earnings CAGR of 32.9% for Oriental Kopi and a FV of MYR0.64, based on a 20x FY25F P/E (see pages 2-3 for justification). Key risks include delays in executing its expansion plans, a sharp rise in operating costs, and increased competition.

Source: RHB Research - 10 Jan 2025

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