Better than expected. Oldtown’s 9MFY12 core net profit was above expectations, accounting for 80.2% of our and 78.1% of consensus’ full-year estimates. The better-than-expected earnings were due to resilient profit before tax from its fast moving consumer goods (FMCG) business, which grew marginally by 1.4% q-o-q. This helped to offset the sequential 12.0% drop in profit before tax (as shown in Figure 3) at the food and beverage (F&B) segment. The weaker earnings from its F&B division were attributable to slower sales during the Ramadan month in 3Q, during which earnings are seasonally the weakest for F&B. Gross margins remained stable at 31.9% this year compared with 32.0% over the corresponding period last year, probably due to: i) stable coffee prices throughout the year, and ii) management’s successful marketing efforts, which did not involve sacrificing margins in order to stimulate sales.
FMCG sales outpace F&B sales YTD. On a YTD basis, FMCG sales grew 24.4% y-o-y while F&B sales jumped 19.8% y-o-y as export sales continued to outperform sales to the domestic market. This reaffirms our view that the stock’s main catalyst lies with its FMCG business. We are of the view that the group’s exports will see significant growth next year once its new factory in China commences operation.
Paying its first dividend for this FY. The group has declared an interim dividend of 6.0 sen per share compared with 2.5 sen per share during the corresponding period last year. The group’s balance sheet remains sturdy as it is in a net cash position.
Maintain BUY. With the exit of KFC and QSR from the local bourse by the end of the year, we continue to like Oldtown for exposure in the F&B sector. This is premised on the group’s consistent top- and bottom-line expansion and potential growth in its overseas business. We are taking the opportunity to tweak our forecasts to reflect the change in the group’s FYE from December to March. Hence, we are revising upwards our fair value (FV) to RM2.60 as we peg the stock to 15x FYE13 EPS.
Quarterly dip in F&B revenue within expectations. As shown in Figure 1, F&B revenue dipped 3.8% q-o-q while FMCG revenue ticked down by 1.1% q-o-q. Despite registering a marginal 1.1% dip in revenue, profit from FMCG grew 1.4% due to better margins this quarter while profit from the F&B business shrank by 12.0% y-o-y. We are not surprised with the poorer performance from its F&B business as 3Q is seasonally the weakest quarter as it coincides with the Ramadan month.
Exports lift FMCG sales. We continue to favour Oldtown’s FMCG business, whose revenue surged 24.4%y-o-y (compared with a 19.8% y-o-y growth from the group’s F&B business) as exports continued tooutperform domestic sales. This reinforces our view that the stock’s main catalyst lies in its FMCGbusiness. We expect the group’s exports to grow significantly next year once its new factory in Chinacommences operation.
Outlets expansion intact. Oldtown added six new outlets to its portfolio, bringing the total number of outlets to 213 (11 in Malaysia, 1 in Singapore, 3 in Indonesia and 2 in China) as at 3Q12 compared to 196 as at end-FY11. We are making no changes to our previous forecasts as we believe that the company should be able to open nine more outlets by the end of this quarter, boosting the total to 221 outlets.
First ‘Newly Designed Signature Outlet’ debuts in Mid Valley. Besides launching its first kiosk outlet in KLCC recently, the group opened its first newly designed signature outlet in Mid Valley Megamall today. We understand that the outlet, located on the third floor near the convention centre, is relatively small in size but embodies the ‘tradition meets modern’ appeal. With Mid Valley Megamall attracting some 30m-33m visitors annually (based on CBRE Research estimates), we think this Oldtown outlet will be profitable as it would benefit from the mall’s success in attracting and retaining shoppers.
Maintain BUY. All in all, we reiterate our BUY recommendation on Oldtown, premised on its consistent top- and bottom-line growth. We value the stock at RM2.60, pegged to 15x FYE13 EPS. That said, we believe the stock could rerate to 17x-18x forward earnings next year if the company can translate overseas expansion strategy into profits.
Maintain BUY. All in all, we reiterate our BUY recommendation on Oldtown, premised on its consistent top- and bottom-line growth. We value the stock at RM2.60, pegged to 15x FYE13 EPS. That said, we believe the stock could rerate to 17x-18x forward earnings next year if the company can translate overseas expansion strategy into profits.
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