FMCG segment expansion continues

PETALING JAYA: Oldtown Bhd’s secured licensing in Shanghai, China, is not expected to have a significant effect on its earnings but the expansion of the café division to Hong Kong, Myanmar and Jiangsu and Fujian provinces in China since late-2016 represents part of Oldtown’s expansion plans for its fast-moving consumer goods (FMCG) segment, said HLIB Research.

Oldtown recently entered into a territorial licence agreement with Xiamen Kuaike Investment (XKI) to operate café outlets in Shanghai. HLIB noted that Oldtown also secured an agreement with XKI to operate café outlets in Fujian Province back in March 2017.

As part of the agreement, XKI will be granted the exclusive right to operate café outlets within the territory and/or to grant sub-licences in the territory to other operators.

“While we are positive on the latest development, we deem the latest development within our expectation,” HLIB said, adding that while it is positive on the announcement of this agreement, it does not expect it to have a significant effect on earnings.

It said Oldtown’s FMCG exports are accelerating at a rapid pace, which will provide significant revenue contributions for the group going forward.

“Additionally, the opening of new café outlets domestically should take advantage of the recovering consumer sentiment. Despite this, we reckon growth prospects are already priced in at current levels,” added HLIB.

The research house pointed out that risks include relatively elastic demand, rising raw material prices and the occurrence of ringgit strengthening would impact exports.

It maintained its “hold” call on Oldtown with a target price of RM2.75. The stock closed two sen higher at RM2.76, with some 106,700 share changing hands.