Fire has no major impact on Oldtown

PETALING JAYA: The operational impact on earnings as a result of the explosion at Oldtown Bhd unit Emperor’s Kitchen Sdn Bhd’s (EK) central food processing centre is expected to be insignificant.

The group has confirmed that the explosion was not structure-wide but limited to a specific production room that produces OldTown’s proprietary paste and sauces.

As part of its contingency plan, the company said it would now outsource its food inputs.

Assuming 10% higher food input costs due to outsourcing for a one-month period, this would translate to a 0.8% impact on earnings in financial year 2018, said AmInvestment Bank Research.

“Based on our initial estimates, the operational impact on earnings is insignificant.

“We temporarily exclude the financial impact arising from structural damage seeing possible insurance entitlement,” the research house said in a note.

It noted that the food and beverage segment contributed about 30% to the company’s total earnings. The explosion at the food processing centre at Subang Industrial Estate occured last Thursday and had not impacted the company’s coffee and beverage manufacturing and warehousing facilities.

In a statement, the cafe chain operator said the food processing operation in the plant had temporarily ceased its operation and was expected to re-commence via auxiliary means as soon as possible in order to mitigate any supply disruption.

“At this juncture, the board is unable to finalise the financial impact on EK but believes that the damages are adequately insured, pending the insurance assessment,” Oldtown said in a filing with Bursa Malaysia after the incident.

It added that the authorities were investigating the cause of the explosion.

AmInvestment Bank Research, which maintained its “buy” call on the counter, said it continued to like the company for its export-driven growth and position as a market leader for the white coffee brand in its core markets.

It noted that OldTown experienced “occasional operational hiccup”.

“It suffered an FMCG (fast-moving consumer goods) production glitch and a supply chain disruption over the past two years.

“However, unlike previously, this incident is a greater detriment to reputation than to its financial standing,” it said.

Based on our initial estimates, the operational impact on earnings is insignificant. AmInvestment Bank Research

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