Oldtown - OUTPERFORM - 28 May 2012

Period   1Q12

Actual vs.  Expectations

The 1Q12 net profit (NP) of RM11.4m was in line with the street’s estimate and our forecast of RM41.3m (28%) and RM43.9m (26%) respectively.  

Dividends  No dividend was announced during the quarter

Key Result Highlights

As the stock was listed in July 2011, yearly comparison is not available. 

QoQ, revenue was down by 4% due to an almost flat growth of 0.3% QoQ for beverage manufacturing, which was not enough to cushion the decline in the café chain segment (-6% QoQ). The weaker sales were due to less new franchised outlets opened, meaning fewer furniture and utensils sales compared to 4Q11.

However, PBT improved 6% QoQ due to lower advertisement and promotion costs (selling and distribution expenses: -47% QoQ) and lower amortization of intangible asset in the quarter. \

NP declined 2% QoQ due to a more normalized tax bracket of 26% (vs. just 21% in 4Q11).

Outlook  We remain positive on the company given its two key drivers; 1) the strong growth of its fast moving consumer goods (“FMCG”) which is expected to be boosted by growing regional market share, including untapped markets in China, South Korea and Vietnam and; 2) its vision of opening more outlets in Malaysia, Singapore, Indonesia and China.

As of March 2012, the company has 201 café outlets as compared to 196 in Dec 2011. Given the current rate of store opening, we believe our conservative target of 25 new outlets this year is viable to grow the earnings further by opening new stores in the 2H12 to capture the festival season.

Change to Forecasts

Maintain FY12-13E net profit of RM43.9mRM51.7m.

Rating  MAINTAIN OUTPERFORM

We like the company for its strong FY12-13E earnings growth of 9%-18%. Together with its decent net dividend yield of 5%, the stock offers total returns of 15% to our TP of RM1.58. 

Valuation  No changes to TP of RM1.58, based on 12x PER over its FY12 EPS of 13.2sen. 

Risks  Global economic uncertainty may impact consumers spending, which will consequently soften the company’s earnings.    

Source: Kenanga