Monday 18 June 2012

Oldtown - OUTPERFORM - 18 Jun 2012


We still think Oldtown remains a good bet among consumer stocks, riding mainly on its two segments – the strong growth of its fast moving consumer goods (“FMCG”) in untapped markets, as well as, continuous opening of café outlets in the region. Increasing shareholding activities, especially institutional ones, reflects growing investors’ confidence given positive prospects and management’s commitment. Earnings forecast maintained. We continue to be bullish and maintain OUTPERFORM with higher Target Price of RM1.73 (RM1.58 previously). Valuations are based on unchanged 12x Fwd PER and average FY12-13E EPS of 14.4sen as we partly  roll over  to FY13E. Together with  its decent FY12-13E net dividend yield of 4.6%-5.4%, the stock offers total returns of
10%. 

Coffee to go!  Along the transformation journey towards a developed and high-income nation, Oldtown believes Malaysians increasing living standards of burgeoning white collared professionals will see rise of ‘on the go’ kiosk concepts; hence the new ‘Coffee to go!’ concept. Management is targeting to set up two kiosks in KLCC and Midvalley Megamall in Sep-Oct 2012 based on initial investment of RM200k-RM300k per store. The company has yet to confirm full or partial ownership of the kiosks. Breakeven period ranges between 12-24 months but contributions will be minimal at this juncture.

Café on track. In Singapore, the new concept stores with more pleasant and modern fittings have resulted in sales doubling. So management is bringing this new concept stores to Malaysia. Out of 7 outlets opened in 2Q12, 3 of these are the new concept stores. Furthermore, management also highlighted that its China’s centralize kitchen is on track, commencing in 6-9 months to embark on greater café expansion in the tier one cities in China. Their target domestic and regional café outlets growth will sustain our estimated FY12-13E segment growth of 11%-12%.

Maintain forecasts. We remain positive on the company given its two key drivers; 1) strong FMCG growth, boosted by growing regional market share, including untapped markets in China, South Korea and Vietnam; 2) its vision of opening more outlets in Malaysia,  Singapore, Indonesia and China. As such, we are maintaining our FY12-13E earnings growth of 9%-18%.

Reiterate OUTPERFORM with higher Target Price of RM1.73 (RM1.58 previously). Valuations are based on unchanged 12x Fwd PER and average FY12-13E EPS of 14.4sen as  we  partly  roll  over  to  FY13E.  Our applied Fwd PER is based on industry average. Together with its decent net dividend yield of 4%-5%, the stock offers total returns of 10% to our TP of RM1.65.

Source: Kenanga

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