Share price: MYR2.36
Target price: MYR3.55 (unchanged)
Opportunity To Accumulate
Results within expectations, BUY. Oldtown’s 1QFY3/14 results were within expectations with recurring net profit of MYR12.2m (+3% YoY; +4% QoQ) coming in at 22% of our and consensus full-year forecasts. Prospects for Oldtown remain intact and the recent selldown presents a good opportunity to accumulate the stock. We maintain our earnings forecasts, BUY call and TP of MYR3.55 (21x CY14 PER).
New stores target intact. The F&B segment reported a marginal 1.5% QoQ decline in 1Q revenue to MYR52m due to slower new store openings. However, management is confident in achieving the target of 20-30 new stores in Malaysia in FY3/14 although they have merely opened 3 in 1QFY3/14. Pretax profit contracted 5% YoY in 1QFY3/14 as the group incurred higher operating costs due to minimum wage implementation for the foreign workers.
Startup costs for the FMCG segment. Revenue for the FMCG segment grew 13% YoY in 1QFY3/14 with the plant running at full capacity. Nevertheless, pretax profit increased by just 6% YoY as the group incurred startup costs for the new factory, which was completed in Mar 2013. Profitability should improve as utilization increases at the more efficient plant.
Positive outlook. We remain upbeat on Oldtown’s outlook, driven by its domestic and regional market penetration for both the F&B and FMCG segments. The new FMCG plant in Ipoh commenced operations in July 2013 and should contribute to higher sales and increased efficiencies while the central kitchen in Guangdong, China will be ready by Dec 2013.
An opportunity to buy. With the recent selldown, the stock now trades at 14x CY2014 PER which equates a PEG of 0.8x. We like Oldtown as a domestic consumer play and for its long-term growth story. Oldtown is our top pick in the consumer sector, offering a net dividend yield of 3.4- 4.0% for FY14-15.
Publish date: 29/08/13