China FMCG business taking root.
We understand that the construction of Oldtown’s new factory in Ipoh is on track and is expected to be completed by 3Q12.
Given the good response to its coffee products in China so far, we think that there is upside to our FY13 forecast for the company’s fast moving consumer goods (FMCG) business. This will be driven by that country’s fast-growing middle income population, with which coffee-drinking is increasingly becoming popular. We maintain our view that revenue from the FMCG business will outpace that from its food and beverage (F&B) business as the extra capacity from the new factory will lead to a sharp spike in FY13 earnings.
The company has appointed 3 distributors in China which are distributing its products in
tier 1 cities such as Beijing, Tianjin, Shanghai and Guangdong.
Quarterly Earning Results
We are taking a closer look at Oldtown’s growth outlook following updates from
its management during yesterday’s analyst briefing. All in all, we continue to like
Oldtown’s bright prospects, underpinned by major developments that may
potentially unfold early next year. The stock’s rerating catalysts are:
i) obtaining Jakim’s “halal‟ certification to penetrate the Muslim market,
ii) a stronger-thanexpected rollout of outlets, and
iii) better-than-expected contributions from its
Maintain BUY, with an unchanged fair value (FV) of RM1.66, based on its 12-month forward PER of 13x.