About OldTown ...

Its changing shareholder profile could inject more volatility into the stock price. Specifically, foreign investors have increased their share of the company significantly in recent months prior to Oct 2012. They now (Oct 2012) collectively hold nearly 20% equity interest.

The company has built a consumer brand name in Malaysia driven by two separate but complementary units – the instant coffee/tea mix manufacturing and the café chain businesses.

It currently (Oct 2012) has 189 outlets nationwide as at end June 2012. The OldTown White Coffee 3 in 1 instant mix has a dominant market share in its segment and accounts for roughly 10% of sales for all instant coffee mix in Malaysia.

Domestically, the company plans to open more cafes about half of which will be under its franchise scheme. It intends to keep up this pace of growth for the next few years from 2012.

In addition to new outlets, expect earnings growth to come from existing outlets. In particular organic growth should pickup pace once all of its outlets are certified halal, expected by end 2012. The move to certify all its addressable market, currently (Oct 2012) skewed towards the non Malay consumers.

The company is also exploring the viability of the kiosk business model based on the takeaway concept for snacks and drinks and located in high foot traffic areas, as fresh source of income.

Going forward, the overseas market is likely to become an increasingly important driver of growth. Its instant coffee mix manufacturing business in particular has fared well abroad. Its products have been gaining market share over the past few years and now (Oct 2012) hold dominant market positions in Singapore and Hong Kong. Early sales numbers in Chinahave been encouraging. There are plans to penetrate other markets such as Vietnam and South Korea in the near term.

Its additional capacity will cater for future sales growth.

Its overseas contributions from cafes are still small but should pickup steam going forward. Currently (Oct 2012) there are 17 outlets abroad, primarily in Singapore and Indonesia.

The company has mastered franchise agreement with a local Chinese partner for the Guangzhou and Macauprovinces. Three cafes were opened in the past 12 months prior to Oct 2012 with a target of 30 more outlets over the next three years from 2012.

In addition, the company is exploring the appointing of licenses for other provinces in Chinato further expand its footprint. Licensing, like the local franchise model, limits the company’s investment risk.

It has a strong balance sheet with net cash of rm81 million as at end June 2012. This is sufficient to fund the new manufacturing plant, estimated to cost rm61 million. It is in the process of raising fresh equity via private placement of up to 33 million new shares. The proceeds will keep the company in a net cash position.