OldTown white coffee becoming China’s preferred drink
KUCHING: OldTown Bhd’s (OldTown) venture into the China market is starting to gain traction as their posted financial year 2017 (FY17) sales so far in the fast moving consumer goods (FMCG) manufacturing segment has grown by 17 per cent with a profit before tax growth of 33 per cent.
According to AllianceDBS Research Sdn Bhd (AllianceDBS Research), OldTown’s current China sales account for over 15 per cent of its total FMCG sales and its double digit growth story has occurred due to the favourable reception in the greater China export market.
The research house reported that this has led to FMCG contributions to the group’s earnings, rising significantly to an 80 per cent contribution to the group’s pre-tax profit in FY17 from 71 per cent in FY16.
Due to this overwhelming response from Chinese markets, analysts from Kenanga Investment Bank Bhd (Kenanga Research) reckoned that the group could easily leverage on its solid foothold in the greater China market and achieve exponential growth.
The group would have plenty of room still to undertake larger production volumes to support this growth without significant capital expenses, as its current production utilisation rate continue to hover at circa 50 per cent.
On the whole, AllianceDBS Research belives that Oldtown’s entire regional expansion efforts would offer the growth a multi-year growth potential.
On the other hand, local sales seem be have reached a stagnant phase due to poor consumer spending and to offset this, the group intends to focus their marketing efforts on the foreign markets through e-commerce and retail platforms according to Kenanga Research.
The research arm is positive on this move as they observed that, “Margins in this segment continue to benefit from favourable foreign exchange (forex) exposures and cost- efficient local production facilities, providing the group with some leverage amidst rising costs of raw materials and commodities.”
Meanwhile, Oldtown’s food and beverage (F&B) operations continue face a challenging operating environment as its topline and earnings for FY17 were observed to have dropped year over year (y-o-y) by 1.3 and 21.5 per cent respectively.
The drop in F&B operations isn’t overly concerning according to AllianceDBS Research as they believe that the surge in its FMCG segment would more than off-set its effects to the group’s overall performance.