OSK maintains 'buy' call on Oldtown

OSK Research is upbeat over Oldtown Bhd's future earnings prospects driven by a stronger-than-expected rollout of outlets,
better-than-expected
contributions from its regional business and an anticipated boost from
having been granted the Halal certification.

OSK said given the
good response to Oldtown coffee products in China and the increasing
popularity of coffee-drinking among the country's fast-growing middle
income population, there is an upside to the company's fast moving
consumer goods (FMCG) business financial year 2013 (FY13) forecast.

"We
maintain our view that revenue from the FMCG business will outpace that
of the food and beverage (FandB) segment," it said in a research note
today.

It said the extra capacity from the new factory in Ipoh,
which is expected to be completed in the third quarter, would lead to a
sharp spike in FY13 earnings.

OSK said the company recently
launched the lunch menu in mid-April and it has been successful,
contributing between 20-25 per cent of total sales in the second
quarter.

"We see a potential upside to our forward earnings
estimate for the FandB business if it sustains this momentum in the
third and fourth quarter, as well as from the Halal certification," it
added.

Moving forward, it said key risks to the company are
higher cost pressure due to rising rental cost and wages, inconsistency
in food and service quality.

However, the research house has
maintained a 'buy' call, with an unchanged fair value of RM1.66 on
Oldtown, with the view that the risk mentioned does not give rise to
any change in core net profit. -- Bernama