Target Price: MYR2.90
Business As Usual
OldTown (OTB)’s 1QFY14 results were largely in line with consensus and our estimates. We expect a stronger 2HFY14, driven by its FMCG capacity expansion. 1Q14 revenue and core earnings rose 6.9% and 9.9% y-o-y, thanks to the better numbers at the group’s FMCG segment. Upgrade to BUY, with our FV unchanged at RM2.90.
• In line. 1Q revenue grew 6.9% y-o-y, bolstered by healthy revenue growth from both the food and beverage (F&B, +2.6% y-o-y) and fast moving consumer goods (FMCG, +13.6% y-o-y) segments. Core earnings rose 9.9% y-o-y to MYR12.2m, from MYR11.1m, mainly driven by stronger FMCG performance.
FMCG’s PBT rose 6% y-o-y on solid topline growth, with additional profit contribution from newly acquired HK subsidiary, Advance City Ltd. Despite the higher revenue, F&B’s PBT fell 5.4% y-o-y as the implementation of minimum wage jacked up operating costs. Versus the preceding quarter, revenue and core net profit rose 3.2% and 4.3% respectively, buoyed by decent sales growth.
• Higher operating cost bites into margins. OTB’s higher operating costs led to its EBIT margin trending lower by 1.7ppt to 17.5% y-o-y and PBT margin contracting to 17.2% from 19.2%.
• Expansion full steam ahead. The group, which has a total of 225 cafés, plans to open more outlets domestically and overseas, eg in Singapore, Indonesia and China. OTB’s new FMCG plant, which began operation in June, will boost its annual capacity to 24k tonnes when it reaches full production. The enlarged capacity will allow the group to cater to rising demand over the next five years.
• Forecasts. As OTB’s 1Q14 results were in line, we are leaving our forecasts unchanged. The key investment risks include: i) volatile commodity prices, and ii) weaker consumer spending.
• Upgrade to BUY. Upgrade to BUY with MYR2.90 FV, based on 18x CY14 EPS. We are upbeat on OTB’s outlook in view of aggressive expansion of its F&B outlets and start of production at its FMCG factory in Ipoh. After the recent share price correction, the stock is currently trading at an undemanding 15.5x FY14 P/E.
Publish date: 30/08/13