Analysts optimistic for OldTown White Coffee positive stance
KUALA LUMPUR: AllianceDBS Research Sdn Bhd is still looking forward to a cup of OldTown White Coffee as they continue to maintain their positive stance on OldTown Bhd (OldTown).
The research house maintained its positive investment thesis on the stock as they anticipate that the group’s expansion to regional markets such as China would offer multi-year growth potential.
“We understand that Greater China (Mainland China, Hong Kong, Taiwan) now contributes to 45 per cent of its total fast moving consumer goods (FMCG) sales, followed by Malaysia with 35 per cent.
“Given that China sales alone still accounts for less 15 per cent of total FMCG sales, we believe that its regional expansion story, particularly to the China market will offer OldTown a multi-year growth trajectory,” said the research house.
Based on the recently released fourth quarter financial year 2017 (4QFY17) results, the group’s FMCG business was observed to be on a continuing growth path as both topline and earnings in FY17 posted impressive growths of 17 and 33 per cent respectively.
In contrast, OldTown’s food and beverage (F&B) operations continue to look challenging as its topline and earnings fell by 1.3 and 21.5 per cent respectively.
Despite the decline, the research house was indifferent to the development as they noted that the group’s F&B business carries less weight now due to FMCG contribution growing to 80 per cent of the group’s pretax profit in FY17.
“Nonetheless, investors should not be overly concerned about the challenging environment of its F&B business as FMCG contributions to the group’s earnings have risen significantly.”
Besides that, Old Town also showed a 54 per cent year over year (y-o-y) decline in its 4QFY17 core net profit of RM9.9 million, bringing full year earnings to RM60 million, which was 10 and 5 per cent below the research’s arms and consensus’ earnings estimates for FY17.
This was mostly due to a bad debt provision of RM4.8 million and if excluded, the group’s FY17 results would easily be in line with expectations.
Thus, the research house maintained its ‘buy’ recommendation with a target price of RM3.15 per share.
“The stock remains our top pick in the consumer sector and its recent share weakness offers buying opportunities,” said the research house.