China people LOVE Oldtown White Coffee a lot!!!
Business: Largest oriental café chain in Malaysia with 196 outlets. Oldtown controls around 42% of white coffee market in Malaysia, 23% of coffee mix in HK and 12% of coffee mix in Singapore. Oldtown has 2 main businesses: i) Café chain (64% of sales) and ii) manufacturing of beverages (instant coffee, 36% of sales).
Oldtown is no longer a successful local story. International expansion (especially into China) will be the multi-year re-rating growth story going forward.
Oldtown, which recently opened its first two outlets in Guangzhou, targets to open 36 more by 2015. Have a cross check on the Sina’s Weibo (China largest micro-blogging website with >300m registered users), we were surprisingly by the China’s overwhelming positive response toward the Old Town white coffee. Some of the comments as below:
*Note: For those who read Chinese, can search”旧街场白咖啡” more in Sina’s Weibo.( www.weibo.com)
The company plans to open 20-30 new outlets annually. While majority of the stores are based in the Klang Valley, there is potential for growth in other states such as Johor, Terengganu and Negeri Sembilan. It is also exploring the idea of setting up kiosk-based outlets to assist new franchise owners with low startup costs in 3Q2012.
For the manufacturing of beverages segment (instant coffee), Oldtown has invested RM36.7m in its new factory in IPOH and an additional RM12m in machinery and equipment. The factory is expected to be completed by 3Q and will increase production capacity by 400%. The utilization rate in 2011 is close to 82% and likely to hit 100% in 2012. With the new capacity, it is well cater to the strong demand from China.
In addition, Oldtown is also planning to venture into Vietnam and South Korea for its FMCG this year as well. As all know, the entire nation of South Korea loves coffee Korean consumes 350-400 cups of coffee per year vs 250 cups per year for Malaysian. This will be another growth driver for oldtown.
This year FY12 EPS should be around 12.7 sen. Based on the current share px of RM 1.41, oldtown is trading at 11x FY12PER with 20% growth per annum. 50% dividend policies also translate to 4.3% dividend yield. Balance sheet is solid in net cash position. It’s a long term bet on the stock given the huge potential on the international expansion(especially China.).
Technical Analysis: One to One Breakout Target at RM1.90 for OldTown.
Since IPO, Old Town's stock price has fallen from the high of RM1.40 to a low of RM0.885. The stock price has recently recovered above the high of RM1.40 made in the first trading day, the break above RM1.40 resistance level points to a target price of RM1.90 for Old Town. We don't expect a straight line rally for Old Town, but the probability of a continuation of uptrend has certainly increased with the strong break above the old high with strong volume. Using the breakout system, it suggests that the upside target for Old Town is at RM1.90.