News As
expected, Oldtown has announced a shareholder agreement with Year Full Group Limited
(YG), which operates the “OLDTOWN WHITE COFFEE” licensed restaurant in the territory
of Guangdong, China, for the establishment of a 51:49 joint venture (JV) company
in Hong Kong.
The JV company will
mainly be involved in the setting up of a Central Kitchen business to support
the development and expansion of its licensed outlets in the territory of South
China.
Comments The
investment cost of HKD5.1m or RM2.0m for the 51% equity will not have any
material impact to Oldtown’s balance sheet as the company has a net cash
position of RM64m as at Sep 2012. The investment cost above is thus less than
1% of its net cash.
The set-up will help
to smooth the flow of supply of ingredients to its China’s outlets, where the
company is planning to expand its outlets to more Tier-One cities in China. The
company has an ambition to open 10 outlets per annum in the region.
Given the
well-received response from customers to its first few outlets in Guangdong, we
believe the company’s outlets in China will eventually contribute positively to
the company in the longer term.
Outlook Oldtown’s prospects remain positive with two key
drivers i.e. 1) the strong growth of its FMCG segment, which is expected to be boosted
by its growing regional market share, including that of untapped markets in
China, South Korea and Vietnam and 2) the likely opening of more outlets in
Malaysia, Singapore, Indonesia and China.
Forecast Our
earnings estimates are maintained for now. The company’s next quarterly results
will likely be announced on 27 Feb 2013.
Rating Maintain OUTPERFORM.
Valuation Based
on an unchanged targeted PER of 14.5x on the FY14 EPS of 16.5 sen, our fair
value is maintained at RM2.40.
Risks The
global economic uncertainties may impact consumers spending, leading to a drop
in overall demand and a slowdown in its outlet expansion momentum.
Source: Kenanga
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