OldTown : Some headwinds but opportunity abounds BUY

STOCK FOCUS OF THE DAY

OldTown : Some headwinds but opportunity abounds                                   BUY

We maintain our BUY recommendation but raise our FV to RM3.20 (from RM3.00/per share). Our FV is based on 17.0x CY18F P/E, which is a 20% discount to the simple average PE of its FMCG peers of 23x. We like OldTown for its export-driven growth, market leader as #1 white coffee brand in all its core markets and outstanding operational track record. OldTown has locked in its yearly coffee contracts at prices 10% above our initial assumption of US$1,932/MT for FY18. It is a -4% impact to our FY18 EPS. The spike in S&D expenses to 19.7% of revenue for FY17 (vs. FY16: 17.6%) is expected to gradually grow to 25% over the next 5 years in tandem with OldTown’s market expansion plans. For the quarter, China FMCG sales registered 71% YoY. It is growing stronger than we expected, spearheaded by its online growth. As a result, we double our China sales to 40% for FY18. As of FY17, China’s FMCG contribution is now close to 25% of total FMCG sales.

As per our expectation, outlook on its F&B operations locally remains soft. However, we are pleasantly surprised over its foreign store expansion outlook, in China and Myanmar. It will be on a licensing basis, resulting in minimal risks to OldTown in our opinion. We are positive over OldTown capex doubling in FY18. The incremental spending is expected to improve its FMCG operational efficiency through further automation. It is expected to be completed in 3QFY18. We trim our earnings by 7% and 2% respectively for FY18/FY19 after updating our assumptions. We believe the vast untapped China (Exhibit 1) market still far outweighs the near term lofty commodity prices and the present, but receding F&B headwinds. We take this opportunity to roll forward our valuations to CY18F from FY18F.

Others :

YTL Reit : Acquisition of Majestic Hotel KL earnings accretive                        BUY

Titijaya Land : Getting aggressive on new launches                                           BUY

Mah Sing Group :  Another development in Sentul                                           BUY

Econpile Holdings : 9MFY17 net profit grows 22% YoY                                      HOLD

QUICK TAKE

Plantation Sector : News flow for week 22-26 May                                           NEUTRAL

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DISCLAIMER:

The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd. Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmBank Group Bhd and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.