Company Update Company Update | Oldtown | 30 November 2012 (Member of Alliance Bank group)
PP7766/03/2012 (029226) Oldtown Buy
30 November 2012 Consumer Bloomberg Ticker: OTB MK | Bursa Code: 5201
Analyst Selling pressure dissipating , a syariah-compliant stock now Ian Wan [email protected] We reaffirm our positive view on Oldtown as its business expansion plans are well on +603 2604 3919 track. Furthermore, recent profit taking activities which has dampened its share price may
dissipate soon as local institutional investors with lower entry cost have already pared
12-month upside potential down significant portion of their stakes in the company amid rising foreign shareholding. Target price 2.49 We also noted that Oldtown has just been classified as a syariah-compliant stock by the Current price (as at 29 Nov) 1.93 Securities Commission today. We view all these as strong re-rating catalysts for Oldtown. Capital upside (%) 28.8 Hence, we reiterate our BUY call on Oldtown with unchanged TP of RM2.49, implying Net dividends (%) 3.6 28.8% capital upside with a decent yield of 3.6% in FY12. Total return (%) 32.4 3QCY12 analyst briefing key takeaways Oldtown held its 3QCY12 analyst briefing yesterday which was well attended by more Key stock information than 80 fund managers and analysts. Syariah-compliant? Yes To recap, Oldtown’s 3QCY12 revenue and core earnings contracted by 2.7% q-o-q and Market Cap (RM m) 636.9 6.8% q-o-q respectively. The q-o-q slowdown was mainly due to weak performances by Shares outstanding (m) 330.0 Free float (%) 37.7 both of its local F&B (3QCY12 revenue -4.6% q-o-q) and FMCG (3QCY12 revenue -15.5% 52-week high / low (RM) 2.29 / 1.02 q-o-q) segments, as the former was affected by lower sales during the Ramadan fasting 3-mth avg volume ('000) 985.4 month (Aug 2012) while the latter faces stiffer competition following a few launching of 3-mth avg turnover (RM m) 1.9 new white coffee by its competitors since Sept 2012. Going forward, management will focus on capturing a larger share of the Muslim Share price performance consumer market in Malaysia, which represents 67% of the country population but only 1M 3M 6M makes up <20% of its existing customer base (improved from 15% in 2QCY12). Absolute (%) 1.0 -9.0 35.0 Management is currently working hard to achieve full JAKIM Halal certification for all of Relative (%) 5.3 -6.3 32.1 its local outlets by the end of 2012, which we view as a potential re-rating catalyst if the
group successfully implement an effective marketing campaign to capitalise on its full
Share price chart Halal status. With regards to its China expansion, the group has already opened 4 outlets as of today, of which 2 are in Guangzhou and 2 in Shenzhen. Going forward, the group plans to open another 1 outlet in Feb 2013, followed by an aggressive roll-out once its central kitchen in Foshan is ready for full operations in 1QCY13/2QCY13. As usual, we track the feedbacks and acceptance level of Oldtown’s products in China via Sina Weibo. As at 28 Nov 2012, we found close to 3.7m tweets related to Oldtown White Coffee as compared to 84k and 4k tweets found in Sept and June 2012 respectively. This indicates that Oldtown’s brand awareness in China has skyrocketed! With regards to the latest changes to its shareholding, foreign shareholding in Oldtown has further increased from 19.7% in early Sept 2012 to 26.4% as at 23 Nov 2012.
Meanwhile, most of the local institutional investors have pared down most of their stakes in the company. Major shareholders % This leads us to believe that selling pressure on Oldtown may dissipate soon, as most of Oldtown International 50.1 the local institutional investors of Oldtown with lower entry cost have mostly taken their Neobalano Carpus 10.0 profit over the past 2-3 months.
Maintain forecasts We keep our forecasts unchanged post the analyst briefing.
Reiterate BUY recommendation with TP of RM2.49 We reiterate our BUY call with unchanged TP of RM2.49, based on 15x CY13 P/E. Again, we like Oldtown on 3 investment angles, i.e. (1) strong 3-year earnings CAGR of 26.9% driven by its aggressive expansion plan, especially its FMCG segment, (2) extremely scarce investment alternatives to ride on the rising coffee consumption in China, and (3) tremendous earnings potential from the untapped coffee market in China. Key risks include (1) threat of the new entrants who could imitate Oldtown's recipe and restaurant concept at a much competitive price, (2) higher costs pressure due to labour wages, rent and coffee bean, (3) slower than expected expansion plan, and (4) global economic slowdown which could hurt the F&B industry as a whole.
All required disclosure and analyst certification appear on the last two pages of this report. Additional information is available upon request. Redistribution or reproduction is prohibited without written permission Company Update | Oldtown | 30 November 2012
SNAPSHOT OF FINANCIAL AND VALUATION METRICS
Figure 1 : Key financial data
FYE 31 Dec FY10P* FY11 FY12F FY13F FY14F
Revenue (RM m) 255.1 285.5 341.3 411.9 480.6 EBITDA (RM m) 59.5 58.0 78.9 92.7 105.2 EBIT (RM m) 46.7 44.2 59.5 71.7 87.8 Pretax profit (RM m) 43.4 51.9 60.3 73.0 89.9 Reported net profit (RM m) 31.7 40.2 45.2 54.7 67.4 Core net profit (RM m) 32.8 33.1 45.2 54.7 67.4 EPS (sen) 9.6 12.2 13.7 16.6 20.4 Core EPS (sen) 9.9 10.0 13.7 16.6 20.4 Alliance / Consensus (%) 105.2 108.1 N/A Core EPS growth (%) N/A 0.9 36.7 21.0 23.3 P/E (x) 19.4 19.3 14.1 11.6 9.5 EV/EBITDA (x) 7.1 6.1 5.1 4.1 3.2 ROE (%) 17.4 15.2 18.9 20.6 22.6 Net gearing (%) Net cash Net cash Net cash Net cash Net cash Net DPS (sen) - 6.5 7.0 8.5 10.5 Net dividend yield (%) - 3.4 3.6 4.4 5.4 BV/share (RM) 0.57 0.66 0.72 0.81 0.90 P/B (x) 3.4 2.9 2.7 2.4 2.1
* FY10 is a pro-forma account, which includes the contribution from the 8 subsidiaries which are not owned by Oldtown from Jan to May 2011.
Note: For comparison purpose, we keep our forecasts financial year end at 31 Dec, although the company has proposed to change its financial year end to 31 March. We will adjust the changes accordingly as we approach the end of 2012.
Source: Alliance Research, Bloomberg
Figure 2 : Forward P/E trend Figure 3 : Forward P/B trend
Price Price 2.50 2.50 2.40 2.40 2.30 2.30 2.20 2.20 2.10 2.10 2.00 2.00 1.90 1.90 1.80 1.80 1.70 1.70 1.60 1.60 1.50 1.50 1.40 1.40 1.30 1.30 1.20 1.20 1.10 1.10 1.00 1.00 0.90 0.90 0.80 0.80 Jul-11 Jul-12 Jan-12 Jul-11 Jul-12 Sep-11 Sep-12 Jan-12 Nov-11 Nov-12 Mar-12 Sep-11 Sep-12 May-12 Nov-11 Nov-12 Mar-12 May-12
Min: PER -1Std: PER Avg: PER +1Std: PER Max: PER Min: -1Std: Avg: +1Std: Max: 5.7 x 7.6 x 9.5 x 12.2 x 14.9 x 1.2 1.6 1.92 2.4 3.0
Source: Alliance Research, Bloomberg Source: Alliance Research, Bloomberg
2 Company Update | Oldtown | 30 November 2012
KEY TAKEAWAYS FROM ANALYST BRIEFING
Huge untapped Muslim market in Malaysia
Yesterday, Oldtown held its 3QCY12 analyst briefing which was well attended by more than 80 fund managers and analysts. The company was represented by Mr. Lee Siew Heng (Group Managing Director), Mr. Alex Chuah (COO of FMCG segment) and Mr. Clarence Leon D’Silva (COO of F&B segment).
3QCY12 weak performance was To recap, Oldtown’s 3QCY12 revenue and core earnings contracted by 2.7% q-o-q and 6.8% mainly due to local business q-o-q respectively. The q-o-q slowdown was mainly due to weak performances by both of its local F&B (3QCY12 revenue -4.6% q-o-q) and FMCG (3QCY12 revenue -15.5% q-o-q) segments, as the former was affected by lower sales during the Ramadan fasting month (Aug 2012) while the latter faces stiffer competition following a few launching of new white coffee by its competitors since Sept 2012. On the positive front, both revenue from overseas F&B and FMCG segments registered encouraging growth of 5.1% q-o-q and 16.3% q-o-q. This reaffirms our view that overseas demand remains strong and once the new FMCG capacity kicks in by early 2013, revenue and earnings growth will start to pick up too.
Figure 4 : Oldtown’s average F&B revenue per outlet Figure 5 : Oldtown’s 3QCY12 performance by segment
Average F&B revenue/ outlet (RM k/ yr) Q-O-Q growth (RHS) RM m Revenue Q-O-Q growth
50.0 20.0% 1,200 15.0% 16.3% 11.7% 45.0 15.0% 1,000 40.0 10.1% 10.0% 10.0% 35.0 5.1% 800 30.0 5.0% 5.0% 25.0 0.0% 3.5% 600 20.0 -4.6% -5.0% 0.0% 15.0 -10.0% 400 10.0 -15.5% -15.0% -5.0% 5.0 200 -5.6% - -20.0% -8.7% Local café outlets Local Foreign Foreign café 0 -10.0% manufacturing ofmanufacturing of outlet 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 beverages beverages *Avg F&B revenue/ outlet would drop as more licensed outlets added in overseas market. Source: Company data, Alliance Research Source: Company data, Alliance Research
Figure 6 : Progress on the construction of new FMCG factory Figure 7 : Progress on the construction of new FMCG factory
Source: Company Source: Company
3 Company Update | Oldtown | 30 November 2012
Figure 8 : Progress on the construction of new warehouse Figure 9 : Progress on the construction of new warehouse
Source: Company Source: Company
Figure 10 : Progress on the construction of canteen/ recreation centre Figure 11 : Progress on the construction of new administration office
Source: Company Source: Company
Marketing campaign in place once During the briefing, management emphasised that there is huge untapped Muslim consumer it secures full JAKIM Halal status for market in Malaysia, which represents 67% of the country population but only makes up less all of its local outlets than 20% of its existing customer base (improved from 15% in 2QCY12). According to management, 147 out of its 191 local outlets had been awarded JAKIM Halal status as at Nov 2012. Management targets to achieve full JAKIM Halal certification for all of its 191 local outlets by the end of this year. Thereafter, Oldtown plans to roll out aggressive marketing campaign to penetrate into the Halal food market in Malaysia. We remain positive on this development and view this as a potential re-rating catalyst in 2013.
With regards to its café chain expansion, most of its market expansions plans are on track. To Most of its café chain expansions recap, Oldtown targets to add 28 new outlets this year in three of its key markets, i.e. are well on track Malaysia (22), Singapore (2) and Indonesia (4). As of today, Oldtown has already opened 25 new outlets in these markets, of which 18 are in Malaysia, 5 in Jakarta and 2 in Singapore. However, the net addition to its local café chain was only 11, as 7 of its existing outlets have been closed for relocation since April 2012, which were delayed for re-opening due to various factors, such as pending approvals/permit from local authorities, awaiting the opening of new shopping mall or new premises, and pending completion of renovation works. Nonetheless, management guided that 7 new outlets would be opened in Dec 2012, which would bring its 2012 net addition in Malaysia to 18 outlets. All in, Oldtown should be able to expand its café chain from 183 outlets in 2011 to 224 outlets in 2012, meeting our full year projection of 222 outlets by end of 2012.
4 Company Update | Oldtown | 30 November 2012
Figure 12 : 7 outlets were closed for relocation in 2012 Figure 13 : 7 outlets targeted to be opened in Dec 2012
Source: Company Source: Company
Apart from that, Oldtown has finally launched its pilot kiosks at KLCC and Mid Valley in Nov Pilot kiosks at KLCC and Mid Valley 2012. Again, management plans to fully rollout the kiosk concept via the franchise model if finally kicked off the results of the pilot rollout are encouraging. Areas with high footfall such as central business district, MRT/LRT stations, smaller retail space within office buildings and hotels are the targeted locations for these kiosks. We are excited on this new concept as we believe the kiosk franchise model can be an alternative channel for the group to penetrate into high footfalls areas including overseas markets such as Hong Kong, where the high rental rates deter it from operating a full-size café outlet.
Furthermore, Oldtown plans to progressively refurbish its local café outlets (about 20-30 Progressively refurbish its local outlets p.a.) to boost its sales over the next few years. Management estimates that capex outlets going forward required per outlet is ranging from RM100k-200k per outlet, which translates to annual capex of RM2-6m p.a. However, management is optimistic that refurbished outlets could see its sales increase by 10-15%, based on the past experience.
Figure 14 : Oldtown Kiosk at KLCC Figure 15 : Oldtown revamp concept outlet
Source: Company Source: Company
5 Company Update | Oldtown | 30 November 2012
Figure 16 : Oldtown’s café chain as at 3QCY12
Fully Owned Partially Franchised Licensed Total Owned Malaysia 78 11 102 0 191 Selangor 23 2 36 61
KL 17 0 28 45 Johor 13 0 4 17 Penang 14 0 2 16 Perak 5 2 5 12 Pahang 0 0 9 9 Kedah 2 0 5 7 Melaka 3 0 3 6 Sabah 0 6 1 7 Negeri Sembilan 1 0 3 4 Sarawak 0 1 3 4 Terengganu 0 0 1 1
Putrajaya 0 0 1 1 Labuan 0 0 1 1 Singapore 3 6 0 0 9 Indonesia 0 3 0 4 7 China n/a n/a n/a 3 3 81 20 102 7 210 Source: Company data, Alliance Research
Increasingly high brand awareness for Oldtown in China
China F&B expansion has been slow With regards to its China expansion, the group has already opened 4 outlets as of today, of in 2012, but expects more which 2 are in Guangzhou and 2 in Shenzhen. Going forward, the group plans to open aggressive roll-out in 2013 another 1 outlet in 1Q2013, followed by an aggressive roll-out once its central kitchen in Foshan is ready for full operations in 1Q2013/2Q2013. To recap, the group aims to open 36 new outlets by 2014.
Figure 17 : First China outlet opened in Guangzhou on 23 Nov 2011 Figure 18 : Second China outlet opened in Guangzhou on 2 March 2012
Source: Company Source: Company
Figure 19 : Third China outlet opened in Shenzhen on 3 Aug 2012 Figure 20 : Fourth China outlet opened in Shenzhen on 5 Nov 2012
Source: Company Source: Company
6 Company Update | Oldtown | 30 November 2012
On top of that, the group’s FMCG business in China is also gaining traction now. Today, Extensive distribution network in Oldtown’s distribution network has been expanded from just 3 first-tier cities (Guangdong, Chine, including major Beijing and Shanghai) to three key regions in China, i.e. (1) the northern region which hypermarkets consists of Beijing and Tianjin, (2) the central region which consists of Shanghai, Jiangsu and Zhejiang, and (3) the southern region which consists of Guangdong and Shenzhen. These distribution channels include major retail chains such as Walmart, Sun Art Group’s Auchan and RT Mart, Carrefour, Jusco and some other small retail outlets. We understand that Walmart, Sun Art Group and Carrefour are three of the top four hypermarket operators in China.
Figure 21 : Oldtown’s distribution networks in China
Source: Company
As usual, we track the feedbacks and acceptance level of Oldtown’s products among the mainland Chinese consumers via Sina Weibo. As at 28 Nov 2012, we found close to 3.7m Oldtown’s brand awareness in tweets related to Oldtown White Coffee as compared to 84k and 4k tweets found in Sept and China has skyrocketed June 2012 respectively. This indicates that Oldtown’s brand awareness in China has skyrocketed! Again, we observed more than 90% are positive comments, based on the sample size of 100 tweets in 5 different pages. This reaffirms our view that Oldtown’s new capacity in both FMCG and F&B are likely to be quickly taken up by the strong demand in China.
Figure 22 : Tweets related to Oldtown White Coffee ballooned by more than 43x in 3 months!
Search as at 17 Sept 2012 Search as at 23 Nov 2012
Source: Weibo
7 Company Update | Oldtown | 30 November 2012
Figure 23 : Positive “tweets” regarding OLDTOWN WHITE COFFEE found in Weibo
Source: Weibo
8 Company Update | Oldtown | 30 November 2012
Most local funds have exited, replaced by some new foreign funds
As highlighted in our previous report, Oldtown has been rising as a “Darling Stock” for Officially a “Darling Stock” for foreign funds since its listing in July 2011, thanks to its compelling regional expansion story as foreign funds which own more than well as its proactive investor relations initiatives. Based on data provided by management, 26% as at Nov 2012 foreign shareholding in Oldtown has further increased from 19.7% in early Sept 2012 to 26.4% as at 23 Nov 2012. Meanwhile, most of the local institutional investors have pared down most of their stakes in the company (most likely liquidated their position) during the same period.
This leads us to believe that selling pressure on Oldtown may dissipate soon, as most of the RM1.80 seems to be the support local institutional investors in Oldtown with a lower entry cost have mostly taken their profit level for Oldtown over the past 2-3 months. As such, we believe that share price of Oldtown should have limited downside from current level as many new investors, particularly foreign funds should have an average cost of more than RM1.80. Hence, we believe these new investors are likely to take a medium to longer term view to ride on the theme of structural coffee consumption growth in Asia, particularly China.
Figure 24 : Changes in Oldtown’s shareholdings structure since IPO listing in July 2011
Source: Company
We have seen a few big foreign funds emerging as top 20 shareholders in Oldtown for the firt New big foreign funds emerged as time. Examples include Thornburg Developing World Fund which is managed by Thornburg top 20 shareholders Investment Management (based in Santa Fe, New Mexico) which has total assets under management of USD81bn as at 30 Sept 2012. Apart from that, we have also seen Svenska Handelsbanke, one of the largest banks in Sweden and the Nordic region to emerge as the second largest foreign shareholder of Oldtown after Creador. Other than that, US funds such as Axiom Micro Cap Equity Fund, and European funds such as ABN AMRO Multi-Manager Funds and Caceis Bank Luxembourg have all emerged for the first time as the top 20 shareholders of Oldtown in Nov 2012.
Figure 25 : Top 24 shareholders control more than 82% of Oldtown
As at As at 7-Sep-12 23-Nov-12 Changes 7-Sep-12 23-Nov-12 Name of shareholders Mil shares % of outstanding shares 1 Oldtown International SB* 165.3 165.3 - 50.1% 50.1% 2 Neobalano Carpus Ltd/ Creador 33.0 33.0 - 10.0% 10.0% 3 Public Smallcap Fund 13.2 10.5 (2.7) 4.0% 3.2% 4 Bong Yam Keng 10.0 10.0 (0.1) 3.0% 3.0% 5 Svenska Handelsbanken Stockholm Swenden - 5.6 5.6 0.0% 1.7% 6 EPF 6.3 - (6.3) 1.9% 0.0% 7 RBC Investor Services Trust Account - 4.8 4.8 0.0% 1.5% 8 Lee Siew Heng- Group Managing Director 5.0 5.0 - 1.5% 1.5% 9 Fidelity Funds Malaysia 3.6 2.0 (1.5) 1.1% 0.6% 10 KWAP 3.3 - (3.3) 1.0% 0.0% 11 CIMB Principal Small Cap Fund 3.2 N/A N/A 1.0% N/A 12 JP Morgan Chase Bank, National Association (Norges BK) - 4.1 4.1 0.0% 1.2% 13 Charles Schwab 3.0 3.3 0.3 0.9% 1.0% 14 Matthews Asia Pacific Fund 2.6 3.7 1.1 0.8% 1.1% 15 Kumpulan Sentiasa Cemerlang 2.6 3.0 0.4 0.8% 0.9% 16 Deutsche Bank AG London (Prime Brokerage) 2.6 - (2.6) 0.8% 0.0% 17 Baring Pacific Fund 2.5 3.2 0.7 0.8% 1.0% 18 Manulife Insurance (M'sia) Bhd 2.5 - (2.5) 0.7% 0.0% 19 Matthews Asia Small Companies Fund 2.3 3.0 0.6 0.7% 0.9% 20 Thornburg Developing World Fund - 2.7 2.7 0.0% 0.8% 21 Manulife Insurance (M'sia) Bhd 2.0 - (2.0) 0.6% 0.0% 22 Driehaus Emerging Market Small Cap Growth Fund 1.9 2.4 0.5 0.6% 0.7% 23 Axiom Micro Cap Equity Fund - 2.3 2.3 0.0% 0.7% 24 ABN AMRO Multi-Manager Funds - 1.6 1.6 0.0% 0.5% 25 Caceis Bank Luxembourg - 1.5 1.5 0.0% 0.5% 26 AIA Bhd 1.7 - (1.7) 0.5% 0.0% 27 Hong Leong Growth Fund 1.6 1.5 (0.1) 0.5% 0.5% 28 Value Partners High-Dividend Stocks Fund N/A - N/A N/A 0.0% 29 Tan Say Yap- Executive Director (co-founder) 0.9 0.9 - 0.3% 0.3% 30 Chin Lai Yoong- Non-Executive Director 0.9 0.9 - 0.3% 0.3% 31 Goh Ching Mun- Excutive Director (co-founder) 0.1 0.1 - 0.0% 0.0% Total 81.9% 82.0% Source: Company data
9 Company Update | Oldtown | 30 November 2012
VALUATION AND RECOMMENDATION
In conclusion, we reiterate our BUY call on Oldtown with unchanged target price of RM2.49, Reiterate our BUY call on Oldtown based on CY13 P/E of 15x. We keep our forecasts unchanged post analyst briefing as with unchanged TP of RM2.49 expansion is well on track.
Again, we like Oldtown on 3 investment angles, i.e. (1) strong 3-year earnings CAGR of 26.9% driven by its aggressive expansion plan, especially its FMCG segment, (2) extremely scarce investment alternatives to ride on the rising coffee consumption in China, and (3)
tremendous earnings potential from the untapped coffee market in China, as well as Halal food market in Malaysia.
Furthermore, Oldtown is also a good yield play, offering 3.6-5.4% net yield for FY12-FY14, based on its dividend policy of 50% payout ratio.
Figure 26 : Peer comparison
Net Dividend Target Share Mkt Cap EPS Growth (%) P/E (x) P/BV (x) ROE (%) Yield (%) Company Call Currency price price (USD m) CY12 CY13 CY12 CY13 CY12 CY13 CY12 CY13 CY12 CY13
OldTown Buy RM 2.49 1.93 209.0 36.7 21.0 14.1 11.6 2.7 2.4 18.9 20.6 3.6 4.4 GourmetMaster N/R TWD NR 185.50 899.9 7.5 24.3 20.9 16.8 4.0 3.4 18.8 20.5 2.1 2.4 Super Group N/R SGD NR 3.25 1,483.8 18.0 18.3 24.8 21.0 4.5 4.0 19.2 20.2 2.0 2.4 Café De Coral N/R HKD NR 22.85 1,687.0 7.1 10.4 25.2 22.8 3.9 3.8 16.3 17.3 3.1 3.4 Bread Talk N/R SGD NR 0.62 142.5 4.9 2.3 14.4 14.1 2.0 1.8 14.8 13.6 2.7 2.7
Average 12.2 16.1 23.3 20.2 4.0 3.6 17.9 19.0 2.6 2.9
Note: Super Group, Food Empire, Bread Talk and Starbucks US are based on Bloomberg consensus.
Source: Alliance Research, Bloomberg Share price date: 29 Nov 2012
Key risks
Threat of the new entrants who could imitate Oldtown's recipe and restaurant concept at a much competitive price.
Higher costs pressure due to labour wages, rent and coffee bean.
Slower than expected expansion plan.
Global economic slowdown which could hurt the F&B industry as a whole.
10 Company Update | Oldtown | 30 November 2012
Oldtown Financial Summary Price Date: 29 November 2012
Balance Sheet Income Statement FY 31 Dec (RM m) 2010P* 2011A 2012F 2013F 2014F FY 31 Dec (RM m) 2010P 2011A 2012F 2013F 2014F
PPE 110.8 66.8 90.5 77.5 67.0 Revenue 255.1 285.5 341.3 411.9 480.6 Intangible Assets 52.0 47.7 47.7 47.7 47.7 EBITDA 59.5 58.0 78.9 92.7 105.2 Inventories 12.9 16.4 18.8 23.0 26.9 Depreciation & amortisation (12.8) (13.8) (19.4) (21.0) (17.5) Receivables 36.6 44.3 46.8 56.4 65.8 Net interest expense (1.5) (0.8) 0.8 1.3 2.2 Other assets 12.4 17.2 17.2 17.2 17.2 Share of associates (0.4) (0.7) - - - Deposit, bank and cash 30.6 85.6 82.3 114.1 151.9 Exceptional items (1.5) 9.2 - - - Total Assets 255.2 278.1 303.3 336.0 376.5 Pretax profit 43.4 51.9 60.3 73.0 89.9 Taxation (11.5) (11.7) (15.1) (18.2) (22.5) LT borrowings 12.5 13.3 13.3 13.3 13.3 Minority interest (0.2) (0.0) (0.0) (0.1) (0.1) ST borrowings 6.7 2.4 2.4 - - Net profit 31.7 40.2 45.2 54.7 67.4 Payables 39.0 34.6 37.6 46.0 53.7 Adj net profit 32.8 33.1 45.2 54.7 67.4 Other liabilities 8.8 10.5 10.5 10.5 10.5 Liabilities 67.0 60.8 63.8 69.9 77.6 Key Statistics & Ratios FY 31 Dec 2010P 2011A 2012F 2013F 2014F Share capital 330.0 330.0 330.0 330.0 330.0 Reserves (142.0) (112.9) (90.8) (64.2) (31.5) Growth Shareholders' equity 188.0 217.1 239.2 265.8 298.5 Revenue 31.7% 11.9% 19.5% 20.7% 16.7% Minority interest 0.3 0.2 0.3 0.3 0.4 EBITDA 19.3% 5.5% 21.5% 17.0% 16.7% Total Equity 188.2 217.3 239.4 266.1 298.9 Pretax profit 8.0% 19.7% 16.2% 21.0% 23.3% Net profit 4.8% 26.7% 12.5% 21.0% 23.3% Total Equity and Liabilities 255.2 278.1 303.3 336.0 376.5 Adj EPS N/A 0.9% 36.7% 21.0% 23.3%
Profitability Cash Flow Statement EBITDA margin 34.4% 32.5% 33.0% 32.0% 32.0% FY 31 Dec (RM m) 2010P 2011A 2012F 2013F 2014F Net profit margin 12.4% 14.1% 13.2% 13.3% 14.0% Effective tax rate 26.5% 22.6% 25.0% 25.0% 25.0% Pretax profit 43.4 51.9 60.3 73.0 89.9 Return on assets 12.8% 12.4% 15.5% 17.1% 18.9% Depreciation & amortisation 12.8 13.8 19.4 21.0 17.5 Return on equity 17.4% 15.2% 18.9% 20.6% 22.6% Change in working capital (5.1) (14.5) (1.8) (5.4) (5.6) Net interest received / (paid) (0.0) 0.8 (2.0) (2.4) (3.2) Leverage Tax paid (11.1) (11.2) (15.1) (18.2) (22.5) Total debt / total assets (x) 0.08 0.06 0.05 0.04 0.04 Others 0.7 (9.4) - - - Total debt / equity (x) 0.10 0.07 0.07 0.05 0.04 Operating Cash Flow 40.7 31.4 60.8 67.9 76.2 Net debt / equity (x) Net cash Net cash Net cash Net cash Net cash
Capex (6.5) (9.9) (43.1) (8.0) (7.0) Key Drivers Others (21.8) (20.4) 2.0 2.4 3.2 FY 31 Dec 2010P 2011A 2012F 2013F 2014F Investing Cash Flow (28.3) (30.3) (41.1) (5.6) (3.8) Total # of cafe outlets 175 196 222 248 274 Growth (%) 12.0% 13.3% 11.7% 10.5% Issuance of shares - 79.2 - - - Sales volume of FMCG (k kg) 5,818 7,032 8,710 11,362 13,886 Changes in borrowings 7.1 (5.8) - (2.4) - Growth (%) 20.9% 23.9% 30.4% 22.2% Dividend paid (9.5) (8.3) (23.1) (28.1) (34.7) Avg revenue per outlet (RM k) 948.8 903.9 933.1 955.3 973.5 Others (2.0) - - - - Growth (%) -4.7% 3.2% 2.4% 1.9% Financing Cash Flow (4.4) 65.2 (23.1) (30.4) (34.7) Avg ASP per kg (FMCG) 15.31 15.40 15.40 15.40 15.40 Growth (%) 0.5% 0.0% 0.0% 0.0% Net cash flow 7.9 66.3 (3.3) 31.8 37.7 Forex (0.0) (0.1) - - - Valuation Beginning cash 9.0 17.0 83.2 79.9 111.7 FY 31 Dec 2010P 2011A 2012F 2013F 2014F Ending cash 17.0 83.2 79.9 111.7 149.4 EPS (sen) 9.6 12.2 13.7 16.6 20.4 Adj EPS (sen) 9.9 10.0 13.7 16.6 20.4 P/E (x) 19.4 19.3 14.1 11.6 9.5 EV/EBITDA (x) 7.1 6.1 5.1 4.1 3.2
Net DPS (sen) - 6.5 7.0 8.5 10.5 Net dividend yield 0.0% 3.4% 3.6% 4.4% 5.4%
* FY10 is a pro-forma account which includes the contribution from the 8 subsidiaries which BV per share (RM) 0.57 0.66 0.72 0.81 0.90 are not owned by Oldtown from Jan to May 2011. P/BV (x) 3.4 2.9 2.7 2.4 2.1
Note: For comparison purposes, we keep our forecasts financial year end at 31 Dec, although the company has proposed to change its financial year end to 31 March. We will adjust the changes accordingly as we approach the end of 4Q12.
11 Company Update | Oldtown | 30 November 2012 DISCLOSURE
Stock rating definitions
Strong buy - High conviction buy with expected 12-month total return (including dividends) of 30% or more Buy - Expected 12-month total return of 15% or more Neutral - Expected 12-month total return between -15% and 15% Sell - Expected 12-month total return of -15% or less Trading buy - Expected 3-month total return of 15% or more arising from positive newsflow. However, upside may not be sustainable
Sector rating definitions
Overweight - Industry expected to outperform the market over the next 12 months Neutral - Industry expected to perform in-line with the market over the next 12 months Underweight - Industry expected to underperform the market over the next 12 months
Commonly used abbreviations
Adex = advertising expenditure EPS = earnings per share PBT = profit before tax bn = billion EV = enterprise value P/B = price / book ratio BV = book value FCF = free cash flow P/E = price / earnings ratio CF = cash flow FV = fair value PEG = P/E ratio to growth ratio CAGR = compounded annual growth rate FY = financial year q-o-q = quarter-on-quarter Capex = capital expenditure m = million RM = Ringgit CY = calendar year M-o-m = month-on-month ROA = return on assets Div yld = dividend yield NAV = net assets value ROE = return on equity DCF = discounted cash flow NM = not meaningful TP = target price DDM = dividend discount model NTA = net tangible assets trn = trillion DPS = dividend per share NR = not rated WACC = weighted average cost of capital EBIT = earnings before interest & tax p.a. = per annum y-o-y = year-on-year EBITDA = EBIT before depreciation and amortisation PAT = profit after tax YTD = year-to-date
12 Company Update | Oldtown | 30 November 2012 DISCLAIMER
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