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Oldtown Bhd (Oldtown), a recently publicly-listed food and beverage player, has achieved remarkable financial year 2011 (FY11) results, boosted by increases in its margins, steady domestic chain growth and export operations.
Oldtown’s FY11 net profit of RM40.2 million beat the consensus and Kenanga Investment Bank Bhd (Kenanga Investment) analyst Teo Joo Tse’s estimates by 12 per cent and nine per cent respectively, further reinforcing the analyst’s bullish conviction on its prospects.
The strong net profit jump of 26.9 per cent year-on-year (y-o-y) was due mainly to the robust sales growth in the manufacturing of its beverages segment (up 21.6 per cent y-o-y), an improvement in the gross profit margin by 2.1 per centage points and also a one-off gain of RM8.5 million from the disposal of property, plant and equipment (PPE) as well as investments in associated companies.
The analyst pointed out that FY11 revenue growth of 11.9 per cent y-o-y was mainly attributable was also attributed to stronger sales in its operation of cafe chains which saw a boost of 6.7 per cent y-o-y.
“We believe that the stronger sales in its cafe chain operation were due to higher sales growth from its existing outlets as well as the fact that a majority of new outlets in the year (or likely 14 out of 21) were opened only in the second half of the year.” she stated.
The higher growth rate was also partially helped by a lower effective tax rate of 22.6 per cent for the year (compared with 26.6 per cent in FY10) as the company received double deduction tax incentives in addition to it being able to avoid any tax on the gain booked in on the disposal of its associated companies.
Oldtown’s vision to expand its domestic and international market involved 20 to 30 new retail outlets per annum in Malaysia and three to four outlets per annum in Singapore. Additionally, it targeted 172 outlets in China and 75 in Indonesia over the next 10 years.
Oldtown remained cash rich at about RM70.8 million, enabling it to more than pay off the RM36.7 million in costs for the construction of the first phase of its new factory in Ipoh.
The new plant would be used as a manufacturing and food processing facility as well as pay for the capacity expansion of its beverages manufacturing as well as to cater for the increased demand from the export market. The group was also looking forward to open more cafe outlets overseas.
Teo was confident that the plant’s expanded capacity (of up to five times initial output) would be able to sustain Oldtown’s fast moving consumer goods (FMCG) segment over the next three to five years, assuming a 20 per cent growth scale moving forward.
A single tier final dividend of four sen was declared in the fourth quarter. Together with the 2.5 sen dividend declared previously, this brought the total full year dividend to 6.5 sen for FY11, which translated into a dividend payout ratio of 53.4 per cent and in line with the promised payout ratio of 50 per cent by Oldtown’s management.
As such, Teo expected a similar payout ratio this year with a 6.6 sen dividend per share (DPS forecast), which would give a dividend yield of 5.3 per cent.
“The company’s outlook continues to remain highly positive in our view. Reflecting its continuing positive prospects, we have raised our Oldtown’s net profit forecasts to RM43.9 million and RM51.7 million (up nine per cent and 0.1 per cent respectively) for FY12 and FY1313 on the back of the stronger FY11 results,” she opined.
The analyst boosted Oldtown’s target price to RM1.58 per share, based on 12 times price earnings ratio over its FY12 earnings per share of 13.2sen. This represented an upside of 26 per cent over the last traded price. (Thursday - March 1st, 2012)
