Oldtown - Sowing the seeds

News   Oldtown has proposed a private placement (“PPP”) of up to 33m new shares of RM1.00 each, representing up to 10% of its existing issued shares of 330m.

 The issue price of the placement shares has yet to be determined. However, it shall be fixed based on 1) the five-day volume-weighted average market price of Oldtown prior to the price fixing date or 2) the par value of RM1.00, whichever is higher. 

 For illustrative purpose, based on the indicative issue price of RM1.84 per placement share, this proposal is expected to raise about RM60.7m to be utilised mainly for capital expenditure (70%) and working capital (30%).

 The PPP is subject to the approval of Bursa Securities and is expected to be completed by 4Q12.

Comments    We believe the placement will likely be very well received due to the strong foreign shareholdings in the stock now, which has grown substantially in the past seven months from 4.0% to 19.7% in September 2012.

 We reckon that the proceeds will allow the company to partially fund its business expansion in both its café and beverage manufacturing businesses both domestically and internationally. For example, it could be used for the company’s latest plan to open kiosks in Suria KLCC mall and Mid Valley Megamall, which is a new business model to penetrate into high footfalls volume areas with higher rental fees. 

 Financial statements wise, it will strengthen the pro-forma book value per share by 14% to RM0.82. However, the pro-forma ROE and EPS will see a dilution down by 3.7ppt and 8.7%, respectively, despite a higher interest income assumed from the proceeds.

Outlook   Remained positive with two key drivers i.e. 1) the strong growth of its FMCG, which is expected to be boosted by growing regional market shares, including untapped markets in China, South Korea and Vietnam and 2) its vision of opening more outlets in Malaysia, Singapore, Indonesia and China. 

Forecast   Maintained.

Rating  Maintain MARKET PERFORM 

Valuation    We are maintaining our TP of RM2.26 based on an unchanged PER of 14.5x over its FY13 EPS of 15.6 sen. Our applied PER is slightly below the +2SD above the average PER Band since listing. 

Risks   Global economic uncertainty may impact consumers spending.   

Source: Kenanga