Oldtown’s annualized 1QFY12 earnings beat consensus and our
estimates, largely attributed to lower advertising and promotion expenses,
boosted by the holidays and festive season in 1Q12. However, we expect
earnings to be weaker sequentially as
the group ramps up advertising and promotional expenditure to boost sales in
the next two quarters. We reiterate our BUY recommendation on Oldtown, premised
on the group’s consistent earnings growth. As we roll over our valuations to
its 12-month forward earnings, we revise upwards our fair value (FV) from
RM1.55 to RM1.66. Maintain BUY.
Better margins q-o-q.
Oldtown‟s annualized 1QFY12 earnings beat consensus and our estimates by 10.7%
and 16.1% respectively. Headline earnings jumped 34.5% q-o-q due to
significantly lower-than-expected selling and distribution expenses (-47%
q-o-q) as well as lower administrative and general expenses (-7.2% q-o-q).
Gross profit margin dipped 2.1% to 33.1% compared with that in the preceding
quarter while EBIT margin edged up 7.3% q-o-q. While growth of its fast moving
consumer goods (FMCG) business remained strong, we also
understand that its FMCG operations had reached full capacity. Hence,
until its new factory is ready, we forecast that the revenue contribution from
this business would come in at no more than 40% of total revenue this year.
Since the group was listed in July last year, there are no comparable figures
for the preceding corresponding quarter ended 31 Mar 2011.
Margins to normalize
as A&P expenses creep up. On a
sequential basis, PBT at Oldtown‟s FMCG business expanded 29.9% q-o-q on the
back of a 1.0% dip in revenue q-o-q. Meanwhile, revenue and PBT at its food and
beverage (F&B) division dipped 6.4% and 4.1% q-o-q respectively due to the
slower rollout of Oldtown franchise outlets, which led to lower franchise fees
and sales of furniture and utensils. In 1Q12, margins were robust owing to the positive effects of the
festive season, which also meant that there was a less pressing need for A&P activities. We think that the group‟s
earnings should normalize in the next two quarters as management would be incurring
higher A&P expenses as it spurs sales in the traditionally weaker 2Q
and 3Q this year.
Maintain BUY. We
are reiterating our BUY recommendation on Oldtown, premised on its consistent
top- and bottom-line growth. We maintain our earnings forecast for FY12 but
move up our FV from RM1.55 to RM1.66 as we roll over our valuations to
Oldtown‟s 12-month forward
earnings. The stock‟s key-rerating
catalysts are: i)
obtaining „halal‟ certification from
JAKIM to penetrate the Muslim market, ii) stronger-than-expected rollout
of its outlets, and iii) better than expected margins due to cheaper raw
materials cost.
Source: OSK
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