Oldtown’s FY17 within expectations, outlook hinges on export numbers
KUALA LUMPUR: Oldtown Bhd’s (Oldtown) financial year 2017 (FY17) results came within analysts’ expectations and they believe the group’s outlook now hinges on its exports numbers.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined: “While sales numbers on the group’s cafés have been relatively stagnant, the group’s strategy to streamline its outlet profile may lead to better margins prospects in the near future.
“In addition, the brand penetration into newer regions will expand the group’s presence and may further supplement its fast moving consumer goods (FMCG) distribution networks.”
It believed that exports would be the key driver to the group’s earnings given flattish domestic FMCG sales outlook and Café Chain performance, hence further encourage efforts towards expanding its export capabilities. On Oldtown’s FY17 results, Kenanga Research noted that the group’s core earnings were within expectations.
“We believe the negative deviation on consensus numbers were due to overly optimistic margin assumptions from the group’s growing FMCG exposure,” it said.
On a year-on-year (y-o-y) basis, the research team said Oldtown’s FY17 sales of RM425.2 million grew eight per cent on the back of better FMCG performance (an increase of 17 per cent) which was led by higher exports to China.
However, it pointed out that the Café Chain segment continued to demonstrate a flattish decline (less than two per cent) but it also indicated an increase in same-store-sales as the group streamlined its operations to 234 stores against 244 stores in FY16.
“Profit before tax (PBT) increased by 18 per cent to RM80.2 million with stronger margins of 18.9 per cent (an increase of 1.6 percentage points) thanks to larger contributions and better foreign exchange (forex) gains from the FMCG segment which commands more favourable margins,” it added.
By quarter-on-quarter (q-oq), Oldtown’s fourth quarter of 2017 (4Q17) revenue declined by eight per cent due to softness in both Café Chain (down three per cent) and FMCG (down 11 per cent) segments.
“We believe FMCG sales were dragged by seasonality as demand in the China market is less paced during the Chinese New Year festivities,” Kenanga Research opined.
It also pointed out that on the PBT level, 4Q17 fell 60 per cent largely due to higher provisions of overdue trade receivables on the Café Chain segment while the FMCG segment incurred higher distribution and selling expenses from seasonality.
“As such, 4Q17 core earnings declined by 59 per cent to RM9.9 million,” it said.
Post-model updates, Kenanga Research adjusted its FY18 earnings estimates by minus one per cent to adjust for a slightly larger tax exposure. Additionally, it maintained a ‘market perform’ rating on the stock.