Oldtown has growth potential for niche suburban markets – Analyst


KUCHING: Oldtown Bhd (Oldtown) has been seen as having potential to grow in the food and beverage (F&B) industry, especially in niche markets such suburban shopping malls as well as expansion in export markets.

OSK Research Sdn Bhd (OSK Research) revealed results and findings from an in-house survey of Oldtown outlets, stating, “The survey reinforces our view that Oldtown is a staple brand for the urban mass market. Based on our results, we continue to like Oldtown’s growth prospects and solid fundamentals.

GROWTH POTENTIAL: OSK Research believes that Malaysians, in general, like the café experience and this trend should benefit Oldtown, which offers it at an affordable price at convenient locations. — Bernama photo

“Oldtown recorded transactions that are generally in the top 25-per cent quartile of the F&B outlets in suburban malls as it appeals to the mass market, in which it has a niche.”

OSK Research believed that Malaysians had generally been brand-conscious, even with regards to coffee shop outlets, as shown by the gap between the leading brands and other franchises.

The research house remained confident that the group’s earnings momentum would sustain in the ensuing quarters. Adding to this, Oldtown had reaffirmed that it would continue paying 50 per cent of its net profit as dividends for financial year 2011 (FY11) and would try to sustain this payout.

The stock offered a dividend yield of 4.1 per cent for FY11 and 4.6 per cent for FY12, based on its last closing price of RM1.29.

Up to recent weeks, the stock had inched up by some 3.2 per cent, and was currently 16.8 per cent below OSK Research’s fair value.

The research house opined that there would still be upsides in the immediate term as Oldtown‘s fourth quarter 2011 earnings could exceed its conservative expectations to substantiate its positive view on the stock.

It opined that café outlets were fast becoming informal meeting and dining places where the young, old, traditional and trendy, locals and tourists converge.

“Malaysians, in general, like the café experience offered by these café operators, which offer a wide selection of food and beverages as well as a relaxing ambience for meeting up and dining.

“This trend should remain in the medium term and should benefit Oldtown, which offers the café experience at an affordable price and at convenient locations,” the research house added.

Old Town’s advertising and promotional activities in print media, television and radio had paid off, noted OSK Research, as the total number of transactions in each of the outlets it surveyed had been competitive against its peers.

Oldtown would continue to grow its fast moving consumer goods (FMCG) business among the Muslim population locally, in addition to its intention to expand its export market to South Korea and Vietnam this year.

OSK Research also continued to be bullish on the growth of Oldtown’s FMCG business, given the strength of its brand and popularity of its products both locally and regionally.

Oldtown itself stated that its F&B business in China had been well-accepted, with expectations to open 15 to 20 stores in the Guangdong region this year.

It also highlighted that the key focus this year for its F&B business was to upgrade its food quality and services to which, it would invest some RM500,000 in internal training programmes and incentive schemes.

“We continue to like Oldtown’s exposure to the defensive F&B subsector, in view of its attractive valuation, decent top line and bottom line growth, and stabilising margins.

“We are forecasting Oldtown to achieve a net profit of RM35.3 million for FY11, representing a net profit growth of 11.5 per cent for FY11 and a revenue growth for its F&B business at 20.5 per cent for FY12 and 13.3 per cent in FY13,” OSK Research stated.