Oldtown Berhad - Results below ours but within consensus

Period    3Q13/9MFY13

Actual vs. Expectations   Due to changes of the FYE from 31 Dec to 31 Mar, our comparisons differ from the company’s announcement presentation as we adjusted the results to a four quarter basis ending Mar. Our quarter hence reflects the 9MFY13 results performance (from 31 Mar 2012 to 31 Mar 2013) as compared to the company’s accumulated period of fifteen months for FY13 (from 31 Dec 2011 to 31 Mar 2013).

The 9MFY13 net profit (NP) of RM33.2m was below our expectations, making up only 62.9% of our earnings forecast of RM52.8m. The weaker-than-expected results were partially due to a goodwill write-off of RM1.96m. Besides, we also underestimated the company’s higher operating expenses.

However, the CY12 NP of RM44.7m was in line with the street’s estimate of RM55.3m, representing 80% of the total earnings for the fifteen months.

Dividends     No dividend was declared.

Key Result Highlights    QoQ, the 3Q13 NP declined 14.2% despite a 5.9% growth in the revenue. This was mainly due to a RM1.96m goodwill write-off. Excluding the one-off item, the NP should have grown by 4.9% QoQ.

YoY, the 3Q13 revenue improved 9.3% on the back of better sales from the café outlets (+3.1%) and instant beverage sales (+21.6%). Nevertheless, the NP declined by 17.5% YoY due to the absence of the higher one-off gains recorded previously in 3Q12 (RM3.2m) and also the goodwill write-off. Again, the normalised NP should have increased substantially by 35.5% YoY in 3Q13 from 3Q12.

For the YTD, the 9M13 revenue improved at a doubledigit rate at 16.5% YoY buoyed by the strong sales increase from both the café outlets (11.4%) and beverage sales (+25.4%). However, the PBT only grew at 4.9% YoY due to the similar reasons as mentioned above, especially the absence of higher one-off gains in 9M12 (RM9.2m). Besides, we also saw a GP margin compression YoY by 1.7ppt to 31.6% given a higher cost of sales and direct expenses.

Outlook     Oldtown’s prospects remain positive given its 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.

Change to Forecasts   Our earnings estimates are maintained for now despite the company’s actual higher operating expenses pending further clarifications with management.

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 uncertainty may impact consumer spending, which will consequently affect the company’s earnings prospects.

Source: Kenanga