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Monday, June 27, 2011


Modern twist to old heritage.
Old Town is the manufacturer of ‘OLDTOWN’ instant beverages and the operator of the ‘OLDTOWN WHITE COFFEE’ kopitiam-based café outlet chain. Since the inception of its first shop in 2005, it has expanded to 182 café outlets in Malaysia, Singapore and Indonesia as at 22 June 2011. Of which, half are either fully-owned or partially-owned outlets while the other half are franchised shops. In terms of profit mix, the café chain operation contributes more (65% of FY10 net profit) while the beverage manufacturing segment accounts for the balance.

More outlets opening will drive growth.
Within a short span of 6 years, Old Town has grown its ‘OLDTOWN WHITE COFFEE’ café outlets from one store in Ipoh to 182 outlets spanning across Malaysia, Singapore and
Indonesia. The number of outlets is set to continue growing, with 38 outlets slated to open in FY11 (of which 14 are already in operation) and an additional 31 shops in FY12. Each fully-owned outlet is projected to generate approximately c.RM1m per year in revenue, though the initial contributions will be lower. We expect the growing network of café outlets to lift total revenue to RM300.6m (+18% y-o-y) in FY11 and RM349.5m (+16% y-o-y) in FY12, translating to a 2-year net profit CAGR of 14% to RM41.4m.

High dividend payout expectations.
Old Town has set a minimum dividend payout policy of 50% of its gross earnings for FY11 and
FY12. Based on our forecasts, net DPS works out to be 4.1 sen this year and 4.7 sen next year, which translates to dividend yields of 3.3% and 3.8%, respectively. We believe Old Town is in a position to sustain the high dividend payout expectations given its healthy balance sheet, with net cash balance projected to rise from RM14.4m (or 4.4 sen per share) post listing to RM34.8m (or 10.6 sen per share) by end-FY12.

Subscribe for a 20% upside potential.
We arrive at our RM1.50 fair value based on a P/E multiple of 12x on FY12F EPS of 12.5 sen.
Compared to its two locally listed peers, our target P/E valuation represents a discount to KFC (P/E of 16x) and a premium to Berjaya Food (P/E of 9x). This partly reflects Old Town’s market cap size of RM495m (based on our fair value of RM1.50) vis-à-vis KFC’s RM3.1bn and Berjaya Food’s RM119m.

by HwangDBS

Sunday, June 26, 2011

FBM KLCI - Despite showing tendencies of upward momentum

So near yet so far. Despite showing tendencies of upward momentum, external headwinds are obstructing the FBM KLCI from registering new record levels at the moment. Nevertheless, if the underlying resilience persists then it could only be a matter of time before the bellwether scales greater heights ahead.

The benchmark index – caught inside a tight trading band of 10-point – finished at 1,564.66 last week, quite close to where it was (at 1,563.43) two Fridays ago. Also closing broadly unchanged for the week were the FBM 70 Index (flat) and the FBM ACE Index (-0.3%) although market breadth came in negative every day except Friday. Daily average volume of 918.2m shares valued at RM1.5b was better than the 824.1m units worth RM1.6b traded the previous week.
Regional bourses staged a rebound last week, paced by Japan (+3.5%), Indonesia (+3.4%) and Philippines (+3.3%). Over on Wall Street, major U.S. equity indices posted a weekly change of between -0.6% and +1.4%. With the U.S. economy still on the mend (which has prompted the official economic growth projections to be cut by the Federal Reserve last week) and the threat of contagion effects from Europe’s debt crisis remains, sentiment among equity investors (especially in the U.S. and Europe) is expected to be weak in the near term.

This could put a cap on Malaysia equities performance for the time being. More so when there are no fresh internal catalysts to stimulate domestic buying interest. On the news front, not much is anticipated in the week ahead, other than the debut listings of MSM Malaysia Holdings (on Tuesday; indicative market cap of RM2.4b) and Eversendai Corporation (on Friday; indicative market cap of RM1.3b).

But from a technical perspective, we sense that there is more upside potential than downside risk going forward. We look out for the FBM KLCI to challenge the immediate resistance line of 1,575 soon. An ensuing breakout will represent a bullish sign, with the benchmark index set to ride on the momentum generated to climb to the next resistance target of 1,605. The FBM KLCI will then plot a sequence of higher highs along the way, breaking the record peak of 1,577 set in early Jan this year. The prevailing resilient pattern, meanwhile, could attract buying activity from bargain hunters if and when the market pulls back. Our first two support levels for the bellwether are pegged at 1,550 and 1,530, respectively.

Report From HwangDBS

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