Key Highlights of Oldtown Analyst Briefing

by mabs Fri 13 Jan 2012, 16:10

Key Highlights of Analyst Briefing

o After
building a strong position in the Malaysian market, OldTown is expanding its
overseas business in its next phase of growth.

o Its Food
& Beverage (F&B) division already has 183 OldTown Kopitiam outlets in Malaysia
with another 8 in Singapore, and 4 in Indonesia. The division CURRENTLY
contributes about 65% of 2010’s revenue and profit and it plans to open another
20 to 30 new cafes in Malaysia.

o The
company is now entering the Chinese market starting with the Guangdong
province. OldTown’s licensee in China has opened its first outlet with monthly
revenue of 200,000 renminbi (RM99,400). The second outlet is expected to be
opened in 2Q12.

o Moving
forward, OldTown is expected to open between 15 to 25 outlets a year in the
province. Over the long term, the company targets to open 172 branches over 10
years in Guangdong.

o Meanwhile, its Fast Moving Consumer Goods (FMCG) division
is also opening new markets overseas. It has identified South Korea and Vietnam
as new target markets. Exports of OldTown’s drinks to both countries are
expected to commence in 3Q12 or 4Q12.

o The FMCG division accounted for 35% of 2010’s revenue and
profit and currently exports to Singapore, Hong Kong, Taiwan, USA, China and
other countries.

o
We view the expansion plans as a positive move to drive
earnings growth amidst the saturated local market and declining growth rates.

o
However, we expect earnings contribution from the new
markets to be insignificant at this moment. As such, we are maintaining our
earnings forecast for 2012.

o While we reckon that the stock renders less exciting
earnings growth, we like the stock for its healthy cash position and decent
dividend yield. With a 50% dividend policy, 2012 dividend yield is forecasted
to be 6.5%.

o We
maintain our fair value of RM1.55 since its IPO. This is based on FY12 EPS
forecast of 16.9 sen with a blended PER of 9.2 times.