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PP10551/07/2012 (030567)
13 January 2012
MALAYSIA EQUITY
Investment Research
Daily
Research on the Move
The Research Team
+60 (3) 9207 7688
[email protected]
Oldtown
We Know What You Ate Last December
CONSUMER
As a follow-up to initiating coverage on Oldtown last week, we now present the
results of a survey conducted in December 2011 at selected Oldtown outlets and
those of its competitors in the Klang Valley. The survey reinforces our view that
Oldtown is a staple brand for the urban mass market. Based on our results, we
continue to like Oldtown’s growth prospects and solid fundamentals. We maintain
our BUY recommendation, valuing the stock at RM1.55 based on 13.0x FY12 EPS.
First-of-its-kind Equities Research Café Survey. To substantiate our positive view on
the company’s F&B business and the F&B industry as a whole, we conducted a survey
to gauge the sales at Oldtown’s outlets as well as consumer sentiment at several café
outlets in the Klang Valley. Based on the data collected and after making a few
assumptions, we estimated the average revenue per day for a particular outlet, and
subsequently, the total revenue for that month.
December the month for eating and drinking. From our survey, it would appear that
KFC is the undisputed leader in food and beverage (F&B), recording total transactions
that exceed its competitors in the same area by more than two times. On the other hand,
Oldtown recorded transactions that are generally in the top 25% quartile of the F&B
outlets in suburban malls as it appeals to the mass market, which it has a niche. As
expected, Papparich appears to be Oldtown’s closest rival as its number of transactions
is close to the latter’s in cases where the two co-exist in the same area. Last but not
least, we think that Malaysians are generally brand conscious even when it comes to
kopitiam outlets, as shown by the gap between the leading kopitiam brands and other
kopitiam franchises, as illustrated in Table 3.
Positive outlook post yesterday’s investor briefing. Following our meeting with the
management yesterday, we remain confident that the group’s earnings momentum will
sustain in the ensuing quarters. Management reaffirms that it will continue to pay out
50% of its net profit as dividends for FY11 and will try to sustain this payout going
forward. The stock offers a dividend yield of 4.1%for FY11 and 4.6% for FY12, based on
its last closing price of RM1.29.
Current rally still has legs. We initiated coverage on Oldtown last week with a BUY
call. Since then, the stock has inched up by some 3.2% and is currently 16.8% below
our Fair Value (FV). We think that there is still upside in the immediate term as
Oldtown‘s 4Q11 earnings will most likely exceed our conservative expectations to
substantiate our positive view on the stock. We value the stock at RM1.55, based on
13.0x FY12 EPS. At yesterday’s closing price of RM1.29, the stock is currently trading at
10.8x FY12 EPS.
OSK Research | See important disclosures at the end of this report
1
OSK Research
FYE Dec
Revenue
Net Profit
% chg y-o-y
Consensus
EPS
DPS
Dividend yield (%)
ROE (%)
ROA (%)
PER (x)
BV/share
P/BV (x)
EV/EBITDA (x)
FY09
FY10
FY11f
FY12f
FY13f
193.7
30.2
47.9
255.1
31.7
4.8
9.2
0.0
-
9.6
0.0
16.8
12.4
13.4
0.57
2.3
8.4
293.8
35.3
11.5
35.3
10.7
5.3
4.1
15.3
11.4
12.1
0.70
1.9
7.6
357.8
39.4
11.6
39.4
11.9
6.0
4.6
15.8
11.8
10.8
0.76
1.7
6.5
423.9
44.7
13.4
13.5
6.8
5.3
16.3
12.5
9.5
0.83
1.6
6.0
14.1
-
Survey areas. Our quest sent us on a food trail covering 7 outlets in 6 areas in the Klang Valley. These were
Cheras Leisure Mall, Jalan Cheras, Bangsar, 1Utama Shopping Mall, Publika (Mont Kiara), Ampang Park
(KL), and Sunway Pyramid Shopping Mall. Please see Figure 1 and Table 1.
Figure 1: Map of food outlets surveyed
Note: Area of survey marked as a black star
Source: OSK, Google Map
Table 1: Oldtown outlets surveyed by location and type of outlet
Outlet location
Cheras Leisure Mall
Jalan Cheras
Bangsar
1Utama Shopping Mall
Publika, Mont Kiara
Ampang Park
Sunway Pyramid
Type of outlet
Shopping Mall
Shop Lot (24-hour store)
Office Building
Shopping Mall
Shopping Mall
Shopping Mall
Shopping Mall
Source: OSK
2
OSK Research
How we carried out our survey. The outcome of our survey depended on obtaining two key indicators from
the café outlets, namely the total number of transactions for the day and number of point-of-sales. With the
data gathered coupled with a few assumptions, we were able to estimate the total revenue per day by
multiplying the day’s total number of transactions with number of point-of-sales, the estimated number of
customers per transaction and estimated average spend. From these figures, we derived the estimated
number of customers observed, while we arrived at the average spend per customer at the café outlets by
assuming that every customer purchases one food item and one drink (the cheapest item on the menu).
Ampang Park outlet the busiest. Among the 7 Oldtown outlets surveyed, the outlet in Ampang Park
Shopping Mall recorded the highest number of transactions of 284 while the outlets in UOA Building in
Bangsar and Publika in Mont Kiara had the least (144 each). This may be because these outlets cater mainly
to office workers who may have been on leave or away due for holidays during the duration of the survey. We
note that Oldtown’s estimated revenue per store per day is consistent among the F&B operators such as
Papparich, Hailam Kopitiam and Kenny Rogers, except for KFC, whose sales clearly outperformed the other
F&B operators we surveyed. In terms of revenue, Oldtown’s best performing outlet among the 7 in the survey
was its Oldtown Signature store in 1 Utama, which generated some 255 transactions totaling an estimated
RM11,359, followed by Ampang Park and Sunway Pyramid with 284 and 276 transactions estimated to be
worth RM10,575 and RM10,277 respectively. In line with our view, we also noticed a substantial gap in terms
of sales between Oldtown and Papparich versus other kopitiam operators. We think that Papparich will
remain an arch rival of Oldtown’s in the medium to long term given the fierce competition between the two
brands.
Survey findings at a glance:
1. KFC is by far the leader among its peer, a finding that is hardly surprising although some may argue
that this is not a fair comparison.
2.
The estimated revenue per day would suggest that Oldtown’s strength is in the Suburban Mass
Market as the outlets in Cheras, Bandar Utama and Sunway outperformed those in the more affluent
neighbourhoods of Bangsar and Damansara Heights.
3.
Oldtown seems to be holding its own against its peers as the estimated revenue per day points to
Oldtown consistently among the top quartile of similar cafes.
4.
Malaysians appear to be brand conscious even when it comes to kopitiams as sales at both Oldtown
and Paparich appear to substantially lead sales at other less established kopitiams.
Figure 2: Total number of transactions per outlet per day in December vs October
No. of transactions
400
350
300
250
October
200
December
150
100
50
-
Cheras Leisure
Mall
Cheras
UOA Bangsar
One Utama
New Wing
Publika Mont
Kiara
Ampang Park
Jusco Bandar
Sunway
Note: The total number of transactions per day for October was guided by management, while the total number of
transaction per day in December was derived from our survey
Source: OSK
3
OSK Research
Figure 3: Total transactions – Cheras
Leisure Mall
Figure 4: Total transactions – Jalan Cheras
(24 hour stores)
No. of
transactions
No. of
transactions
250
600
500
200
400
150
300
100
200
50
100
-
Oldtown
Starbucks
RotiBoy Café
Oldtown
Kenny Rogers
Papparich
In-House Café
Source : OSK
Source : OSK
Figure 5: Total transactions – Bangsar
Figure 6: Total transactions – 1Utama
Shopping Mall
No. of
transactions
No. of
transactions
1,200
800
1,000
700
800
600
500
600
400
300
400
200
200
100
-
Oldtown
The Loaf Café
Starbucks
Hailam
Kopitiam
Papparich
Oldtown
Signature
Papparich
KFC
Starbucks
Kenny Rogers
Source : OSK
Source : OSK
Figure 7: Total transactions – Publika, Mont
Kiara
Figure 8: Total transactions – Ampang Park
Mall
No. of
transactions
No. of
transactions
155
700
600
150
500
400
145
300
200
140
100
-
135
Oldtown
Papparich
Oldtown
Source : OSK
Source : OSK
Figure 9: Total transactions – Sunway
Pyramid
Figure 10: Brands we surveyed
KFC
No. of
transactions
1,200
1,000
800
600
400
200
Oltown
Source : OSK
Georgetown Papparich
White Coffee
KFC
Starbucks
Kenny
Rogers
Source : OSK, Company Website
4
OSK Research
Table 2: Assumptions used on various brands to forecast revenue per day (RM)
Brand
Oldtown
Oldtown Signature
Papparich
Hailam Kopitiam
Georgetown White Coffee
Rotiboy
Starbucks
KFC
Assumption
Customer spends RM10.70 per person (1 food item + 1 drink)
Customer spends RM5.00 per person (2 pieces of bakery product)
Customer spends RM10.00 per person (1 drink)
Customer spends RM8.65 (snack plate with food and drink)
Note: Assumptions are done based on the indicative price stated on the respective outlet’s menu during our survey
between 3-17 Dec. The assumption in Table 2 excludes the 10% service charge and 6% government tax we included
when forecasting revenue per day.
Source: OSK
Table 3: Survey results
Date
Location
Brand
Total
Transactions
POS
Est. Ave.
Spend Per
Pax
(RM)
Est. Ave
Pax Per
Transaction
(RM)
Est.
Revenue
Per Day
(RM)
Oldtown
258
1
12.4
3
9,606.9
Cheras Leisure
Mall
Starbucks
101
2
10.0
1
2,020.0
2-Dec-11
Jalan Cheras
(24 hrs)
3-Dec-11
Bangsar
RotiBoy Café
522
2
5.0
1
5,220.0
Kenny Rogers
164
1
18.4
2
6,049.6
Oldtown
185
1
12.4
4
9,184.9
Papparich
235
1
17.1
2
8,014.4
In-House Café
179
1
8.0
3
4,296.0
Oldtown
144
1
12.4
3
5,362.0
The Loaf Café
1057
1
8.0
1
8,456.0
Starbucks
219
2
10.0
1
4,380.0
Hailam Kopitiam
86
1
13.9
2
2,394.2
Papparich
193
1
17.1
2
6,582.1
255
1
14.8
3
11,358.7
Oldtown
Signature
Papparich
10-Dec-11
1Utama
11-Dec-11
Mont Kiara
(Solaris Dutamas)
14-Dec-11
Ampang Park
17-Dec-11
Sunway Pyramid
275
1
17.1
2
9,378.6
KFC
668
3
9.2
2
36,749.4
Starbucks
248
2
10.0
1
4,960.0
Kenny Rogers
104
1
18.4
2
3,836.4
Oldtown
144
1
12.4
3
5,362.0
Papparich
153
1
17.1
2
5,217.9
Oldtown
284
1
12.4
3
10,575.0
KFC
606
3
9.2
2
33,338.5
Oldtown
Georgetown
White Coffee
Papparich
276
1
12.4
3
10,277.1
139
1
15.2
2
4,224.5
272
1
17.1
3
13,914.4
KFC
973
3
9.2
2
53,528.6
Starbucks
251
2
10.0
1
5,020.0
Kenny Rogers
205
1
18.4
2
7,562.0
842
1
5.0
1
4,210.0
RotiBoy
Note: POS is the abbreviation for point of sales
Source: OSK
5
OSK Research
Figure 11: Oldtown White Coffee (24 hour
store), Jalan Cheras
Figure 12: In House Café (24 hour store),
Jalan Cheras
Source : OSK Research Snapshots
Figure 13: Rotiboy Café in Cheras, Leisure
Mall
Figure 14: KFC, Sunway Pyramid
Figure 15: Oldtown, Sunway Pyramid
Figure 16: Papparich, Sunway Pyramid
Figure 17: Oldtown Signature, 1Utama
Figure 18: Uncle Lim’s, The Curve
6
OSK Research
Other thoughts arising from the survey. As shown in Figures 11-18, we feel that café outlets are fast
becoming informal meeting and dining places where the young, old, traditional and trendy, locals and tourists
converge. We think that Malaysians in general like the café experience offered by the café operators, which
offer a wide selection of food and beverages as well as a relaxing ambience for meeting up and dining. We
think that this trend should remain in the medium term and should benefit Oldtown, which offers the café
experience at an affordable price and at convenient locations.
Watch out for competition. We think that Oldtown will need to keep a close watch on its competitors as
some of them are already starting to slash prices by introducing set menus targeted to specific times of the
day (Papparich introduced its breakfast set menu recently offering set meals from as low as RM4.90). We
think that the competitors are jeopardizing margins to secure more sales – lower margins but earnings
compensated by volume. Although its pricing strategy is still competitive at this juncture, Oldtown will need to
ensure that its quality of product and services remain competitive in the market. Nevertheless, we continue to
like the company for its strong brand and superior marketing strategy, judging from the consistent inflow of
customers across all the outlets we surveyed. We think that its advertising and promotional activities (trimedia: print, TV and radio) has paid off, as the total number of transactions in each of the outlets we
surveyed is competitive vis-à-vis its peers, such as Papparich and Hailam Kopitiam.
Positive after yesterday’s investor briefing. Following our meeting with the management yesterday, we
believe that the company is on track to report earnings that are within our expectations, as 4Q is generally the
best quarter for the F&B industry due to the holiday season and our view is further reinforced by our positive
survey findings. To recap, we are forecasting Oldtown to achieve a net profit of RM35.3m for FY11,
representing a net profit growth of 11.5% for FY11.
FMCG business to expand to South Korea and Vietnam. Oldtown will continue to grow its FMCG business
among the Muslim population locally and it intends to expand its export market to South Korea and Vietnam
this year. We think that its Vietnam venture will face strong competition from local brands, especially Trung
Nguyen Coffee which is the dominant brand there. Nevertheless, management intends to enter this market on
a smaller scale to determine its long-term viability. Back in Malaysia, the group will continue to invest in
advertising and promotional activities, such as participating in the ‘Jom Heboh’ programme to grow its market
share among the Muslim population. We like the idea of Oldtown expanding its Muslim population market
share, but we think that it will face strong competition from established brands, such as Nescafe (Nescafe
held a 70% market share in Malaysia in 2009). We are maintaining our earnings forecast for FY12 and FY13,
as we have already factored in the growth in sales from this strategy. All in all, we continue to be bullish on
the growth of Oldtown’s FMCG business, given the strength of its brand and popularity of its products both
locally and regionally.
Maintain conservative forecasts for F&B business. During the briefing, the management guided that its
F&B business in China is well accepted and doing well. It expects to open 15-20 stores in the Guangdong
region this year. Management also highlighted that the key focus this year for its F&B business is to upgrade
its food quality and services. To achieve this, it will be investing some RM500,000 in internal training
programmes and incentive schemes. Nevertheless, we maintain our view that revenue growth from Oldtown’s
F&B business will be highly correlated to the new number of outlets opened moving forward, and hence, we
are forecasting the same store sales growth to be no more than 0.5% for FY11-13. To recap, we are
forecasting the revenue growth for its F&B business at 20.5% for FY12 and 13.3% in FY13.
Maintain BUY rating. FV at RM1.55. We continue to like Oldtown’s exposure to the defensive F&B
subsector, in view of its: (i) attractive valuation, (ii) decent top- and bottom-line growth, and (iii) stabilizing
margins. Management reaffirmed that it will pay out 50% of its FY11 net profit as dividends and will try to
sustain this payout moving forward. We maintain our BUY recommendation on Oldtown, based on 13.0x
FY12 EPS.
7
OSK Research
EARNINGS FORECAST
FYE Dec
Turnover
EBITDA
PBT
Net Profit
EPS (sen)
DPS (sen)
FY09
FY10
FY11f
FY12f
FY13f
193.7
48.9
40.2
30.2
9.2
0.0
255.1
57.5
43.3
31.7
9.6
0.0
293.8
63.3
47.5
35.3
10.7
5.3
357.8
74.3
53.0
39.4
11.9
6.0
423.9
80.3
59.7
44.7
13.5
6.8
25.3
20.7
15.6
22.5
17.0
12.4
21.6
16.2
12.0
20.8
14.8
11.0
18.9
14.1
10.5
ROE (%)
ROA (%)
-
16.8
12.4
15.3
11.4
15.8
11.8
16.3
12.5
Balance Sheet
Fixed Assets
Current Assets
Total Assets
Current Liabilities
Net Current Assets
LT Liabilities
Shareholders Funds
Net Gearing (%)
-
167.5
87.7
255.2
49.3
38.4
17.7
188.2
186.1
123.8
310.0
54.6
69.2
25.0
230.3
207.2
126.7
333.8
60.6
66.1
23.3
250.0
217.6
140.2
357.8
61.8
78.4
21.7
274.4
-
Net Cash
Net Cash
Net Cash
Net Cash
Margin
EBITDA (%)
PBT (%)
Net Profit (%)
8
OSK Research
OSK Research Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated (NR): Stock is not within regular research coverage
All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be
subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial
instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making
based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting
commitments in the securities mentioned.
Distribution in Singapore
This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to "Institutional Investors", "Expert Investors" or "Accredited
Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited
Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from,
or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd ("DMG").
All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research.
Published by OSK Research Sdn. Bhd., 6th Floor, Plaza OSK, Jalan Ampang, 50450 Kuala Lumpur
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