Old Town Berhad - INITIAL PUBLIC OFFERING

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.

OFFER PRICE: RM1.25 FAIR VALUE: RM1.50
by HwangDBS

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

GAMUDA - MRT timeline intact

Record year. 3QFY11 net profit of RM117m (+24% qo-q, +40% y-o-y) takes 9MFY11 net profit to RM299m, within our but above consensus estimates. Q-o-q EBIT growth was led by construction (+74% to RM59m) and property (+33% to RM50m). 3QFY11 construction EBIT
margins continued to improve, to 13.9% from 8.3% a quarter ago, lifted by the double tracking project (62% complete). 9MFY11 property sales were already equal to our previous RM1bn forecast for FY11, so we revised it to RM1.3bn.

Briefing highlights. The Sungai Buloh-Kajang MRT line elevated works worth RM12-13bn could see substantial awards over the next six months. There will be c.20 packages for which 70 contractors have been prequalified. For the PDP, we are positive that prequalification for tunneling works worth RM7-8bn has started and will close on 27 June 2011. Tenders are
expected to open in 4Q11 with awards in 1Q12. Meanwhile, consultant Halcrow has completed its study on the remaining two lines, and the government is evaluating its proposal. Possible implementation date is mid-2012. In Vietnam, Celadon City was soft launched with 50 units registered to date. Official launch will be in July to coincide with the completion of the show unit.
Gamuda City is now slated for launch in Sep/Oct 2011 after ground works are done.

BUY – still most leveraged MRT proxy. Keep an eye on 27 June, the deadline for tunneling works prequalification, to see if the PDP is likely to secure the project. We still see Gamuda capitalising on its role as PDP for the conversion of RM10bn (50% share) tunneling contract wins for the entire MRT project.

Report From HWangDBS

FBM KLCI show signs of revival for an extended rally ahead

After an initial snag, our Malaysian bourse is showing signs of revival for an extended rally ahead. Therefore, we are keeping our hopes that the benchmark FBM KLCI could plot fresh highs by overcoming its record peak of 1,577 soon.

Saving the best for the last, the key market barometer jumped on Friday to offset earlier losses for a weekly gain of 7.2-point or 0.5%. Finishing marginally weaker through the week were the FBM 70 Index (-0.1%) and the FBM ACE Index (-0.3%). Trading activity picked up to a daily average volume of 824.1m shares valued at RM1.6b, from the 735.3m units worth RM1.4b traded the week before. Malaysia continues to shine as a defensive equity market with a year-to-date return of 2.9%, the best among the eleven regional share indices tracked by us and only one of two that are currently in positive territory (the other being Indonesia, up 0.5% so far this year). Essentially, overseas equities are facing external headwinds which have dragged down their performance lately. This was the case last week when most Asian stock exchanges – such as Hong Kong (-3.2%), China shares listed in Hong Kong (-2.7%) and Singapore (-2.4%) – ended in the red.

Amid the growing worries about a doubtful global economic outlook (particularly in the U.S., China and Japan) and spillover effects arising from the ongoing Europe debt crisis, it will be interesting to hear the views of the U.S. Federal Open Market Committee when the policymakers meet this Tuesday and Wednesday. While the federal funds rate will probably be maintained, the focus is on whether:

1. the timing of any future rate hike will likely come later rather than sooner; and
2. QE2 (the quantitative easing program) will expire in end-Jun as previously stated or a QE3 plan will be hatched.

Meanwhile, it should be a dry week as far as scheduled news flows on the domestic scene is concerned. And the same could be said for trading interest as daily volume is anticipated to come in more or less around 1bn shares just like what it has been in recent weeks. But this does not mean that all will be quiet on our local bourse as window dressing activities may be visible in the run-up to the end of first half of 2011.

From a technical viewpoint, there is a chance for the FBM KLCI – after breaking out from two downward sloping trend lines that stretched back to mid-Jan (see chart overleaf) – to keep the positive momentum going. If so, then we expect the benchmark index to extend its rally (from a recent low of 1,507.64 six weeks ago) and plot higher highs ahead.

On the chart, the benchmark index, which settled at 1,563.43 last Friday, is in a position to test and overcome the immediate resistance level of 1,575 soon. A breakaway from this point could signal more upsides with the FBM KLCI likely to climb above its all-time peak of 1,576.95 (reached in early Jan this year) towards the next resistance target of 1,605.

Should there be any intermittent market pullbacks the first two support lines for the bellwether are seen at 1,550 and 1,530, respectively.

Weekly Market Preview ( 06 JUN 2011 )

After running sideways for approximately 2½ months, our Malaysian bourse could be back on track to scale greater heights ahead. The benchmark FBM KLCI, which leaped to a higher level last week, may build on the technical momentum and attempt to overcome its record peak of 1,577 soon.

The bellwether gained grounds last week, climbing the most on Tuesday for a weekly increase of 11.2-point or 0.7%. Of which, 5.2-index point was contributed solely by Tenaga when its share price rose 6.2% following the electricity tariff hike approval. Finishing mixed through the week though were the FBM 70 Index (+0.8%) and the FBM ACE Index (-1.6%). The larger cap counters attracted more interest, as trading activity showed a daily average of 808.2m shares in volume and RM2.0b in value (which translates to RM2.47 per share), versus the 837.6m units worth RM1.5b (or RM1.79 per share) traded the previous week.

It seems like institutional funds, particularly from overseas, are more active these days. This was also the case in May when foreigners accounted for 31% of overall trading value (up from 20% in Apr). The stock exchange’s latest monthly record released last week also revealed that foreign investors were net buyers of Malaysia equities for the second month in a row, chalking up a net amount of RM1.6b in May versus RM1.2b in Apr.

On the other side of the fence, local institutions sold more shares than they bought last month, totaling a net amount of RM1.3b, quite comparable to Apr’s net selling figure of RM1.2b. Meanwhile, retail investors bought and sold more or less similar amount of shares (measured in value) in May, just like what it was in the preceding month. Following the end of the Jan – Mar quarter corporate reporting season last week, news flows may go slow ahead. In the coming fortnight, routine reports due include: (a) the index of industrial production for Apr
scheduled on Thursday (9 Jun); (b) the May plantation statistics to be released on Friday (10 Jun); and (c) new stock listings by UOA Development (on Wednesday, 8 Jun) and XOX (Friday, 10 Jun).

Nonetheless, light news could be good news for our domestic bourse from a technical perspective. The FBM KLCI jumped out from its sideways pattern last week when it overcame the 1,550 barrier. More importantly, the key market barometer then made an initial breakaway from a triangle formation (see chart overleaf), signaling a possible continuation of the market rally that began in mid-Mar 09. This suggests that the positive momentum generated – which has lifted the index by 44.4-point or 2.9% over the last one month – could carry on and push the FBM KLCI to test the immediate resistance line of 1,575. An ensuing breakout will mean a new historical high for the bellwether (currently stands at 1,576.95, which was attained in early Jan this year) as it makes its way towards the next resistance target of 1,605. Should a market pullback occur, we expect the FBM KLCI to find a stable footing at the support levels of
1,550 (first) and 1,530 (second), respectively.

Changes to FBM KLCI list?

New index members? There might be changes to the FTSE Bursa Malaysia KLCI or FBM KLCI line-up at the mid-year semi-annual periodic review. This benchmark index represents 30 of Malaysia’s largest listed companies ranked by full market cap, which must also meet the freefloat criteria and pass the liquidity test. Using 31 May as the cut-off date, our simulation reveals two potential new entrants – MMHE (RM12.4b market cap) and UEM Land (RM11.4b market cap) – in the member list. Any changes to the index composition will take effect after market close on 17 Jun.

Likely omissions. Although both MMHE and UEM Land – the 26th and 27th largest companies by full market cap – are below the 25th position (a stock must rise to this spot
or above to be inserted as a new constituent under the buffer ruling; see Fig 1 for details), they could still gain entry into the index. This is because: (a) a replacement may be named ahead of the PLUS delisting (RM22.5b market cap) in 3Q11; and (b) MAS (RM4.6b market cap)
has dropped to 51st position, which means it will be dropped as an index constituent under the review rules.

Portfolio rebalancing effects. A snapshot of the probable FBM KLCI line-up is depicted in Fig 3, showing MMHE and UEM Land with relative weights of 0.76% and 0.69%, respectively, based on 31 May close. Changes to the index, if any, could see index-tracking fund managers rejigging their portfolios. We saw share price swings recently in response to the inclusion of MMHE, UEM Land and MAHB into (and the exclusion of PLUS and MAS from) the MSCI Malaysia Index.
Our current recommendations for the stocks under our coverage are PLUS (Hold; TP RM4.60) and MAS (Fully Valued; TP RM1.10).

Report from HWangDBS

Weekly Market Preview ( 23 May 2011 )

Momentum is the fuel to stock market advances. Without this inner strength, the likelihood is that the FBM KLCI could still be boxed inside a trading range for the time being.

The benchmark index recovered further initially, hitting a high of 1,550.62 before ending at 1,541.03 last week, little changed from the close of 1,540.74 two Fridays ago. Finishing mixed were the FBM 70 Index and the FBM ACE Index with a weekly change of +0.7% and -0.1%, respectively. Trading activity, meanwhile, stood at a daily average of 882.8m shares in volume (from 922.6m units) and RM1.5b in value (from RM1.4b) during the holiday-shortened week.

After a climb of 25.5-point or 1.7% in two successive weeks, the FBM KLCI is just 1.5% higher than where it was at the beginning of the year. In terms of regional ranking, Malaysia is presently in sixth position (out of 11 Asian equity indices tracked by us), behind the top winning markets – Indonesia (+4.6% year-to-date), Thailand (+3.9%) and Korea (+2.9%) – but ahead of the worst performers, namely India (-10.6%), Japan (-6.1%) and Taiwan (-1.5%).

Fundamentally speaking, given a prevailing shortage of macro catalysts to trigger a broad market run-up, investors may want to use a bottom-up approach to identify individual stocks that could lift our Malaysian bourse performance. On the corporate scene this week, the interest will be on: (a) Tenaga, as the government may announce electricity tariff hikes on Wednesday according to media sources. Using last Friday’s close of RM6.27 as the reference level, a 5% swing in the share price would translate to a gain or loss of 4-index point in the FBM KLCI; and (b) big-cap listed companies like Telekom Malaysia, KL Kepong, Genting group of companies, Sime Darby and IJM Corporation that have yet to release their Jan-Mar quarter financial results.

From a charting perspective, there is no clear technical signal yet to say a breakout in the FBM KLCI is imminent anytime soon. Even so, we foresee a fairly resilient performance ahead with the index likely to find immediate support around the historically defensive 39-day moving average line. Our first two support levels are pegged at 1,530 and 1,495, respectively.

On the upside, gradual as it may be, the FBM KLCI could be showing a sideways trading pattern with a positive bias going forward. This means the key market barometer may be making its way to challenge the resistance targets of 1,550 (immediate) and 1,575 (next) eventually.

Report from HWangDBS