OldTown’s Singles’ Day sales to grow past 30 pct

KUCHING: OldTown Bhd’s (OldTown) impressive e-commerce sales from last month’s Singles’ Day event on November 11 should drive the group’s fast moving consumer goods (FMCG) segment growth in China operation beyond 30 per cent.

In a company report, AmInvestment Bank Bhd (AmInvestment Bank) saw that OldTown posted a year over year ( y- o-y) sales growth of about 30 per cent in its e- commerce sales during the third quarter of financial year 2018 (3QFY18).

Going off current numbers, the boosted sales should drive the group’s China FMCG segment cumulative first 9 months of FY18 ( 9MFY18) growth beyond 30 per cent.

Despite these assumptions, the bank also guided that they are holding off any readjustments to assumptions at this juncture as OldTown’s management has announced that they are expecting sales to normalise in 4QFY18.

For now, AmInvestment Bank still maintained their overall 20 per cent export FMCG growth assumption or FY18.

Meanwhile in the domestic scene, the group’s FMCG sales for the quarter grew close to a 30 per cent increase year over year ( y- o-y). According to the bank, OldTown’s management has attributed these positive figures to their penetration of underserved trade channels, specifically its general trade.

“We are positive over the concentrated effort to regain domestic market share and re- establish domestic growth. Full-year sales should comfortably meet our domestic FMCG sales assumption of 11.9 per cent with cumulative first half of financial year 2018 (1HFY18) y- o-y sales achieving 15.6 per cent already,” guided the bank.

Additionally, the group’s efforts to revamp its store formats into an express ready-to- eat model is also expected to bode well with increasing cost competencies due to the low dependence on labour in its slated store format.

Overall, it seemed that OldTown’s near to medium-term positive growth prospects are looking solidified thanks to their expansion to regional markets like china that offer multi-year growth potential, and its valuation remaining attractive still despite the recent share price run up.

In light of this, AmInvestment bank is maintaining its ‘Buy’ call on the stock with an unchanged fair value of RM3.20 that is based on a 17 fold price earnings ratio ( PE), a 20 per cent discount to the simple PE of the group’s FMCG peer’s at 23 fold.

On the other hand, another research house, AllianceDBS Research Sdn Bhd reckoned that the stock deserves to be traded a higher price earnings ratio due to its multiyear-growth avenues and bright earnings prospects.

“The stock should trade closer to its regional peers. Our target price is higher than consensus as we peg Oldtown’s target PE higher at 19 fold, which is +1 SD above its mean,” said the research house.

OldTown remained the top pick of AllianceDBS in the consumer sector with a maintained ‘Buy’ recommendation and an unchanged RM3.15 target price.

The group’s efforts to revamp its store formats into an express ready-to-eat model is also expected to bode well with increasing cost competencies due to the low dependence on labour in its slated store format.