Tuesday, June 21, 2016

Oldtown: Earnings Breaking Up


Oldtown Berhad ('Oldtown') is involved in the manufacturing of beverages and operation of cafe chain. Its has a total chain of 237 café outlets, of which 207 café outlets are located in Malaysia, 10 café outlets in Singapore, 16 café outlets in Indonesia and 4 café outlets in China. It operates its café outlets under the brand name of ‘OLDTOWN WHITE COFFEE’. 

The Group is also engaged in the manufacturing, marketing and sales of coffee and other beverages, including instant coffee mix, instant milk tea mix, instant chocolate mix and roasted coffee powder. It offers its products to both local and overseas markets, such as Hong Kong, Singapore, Taiwan, United States of America, Canada, Indonesia, Philippines, Thailand, Brunei, United Kingdom, Australia and China.

Oldtown Factory in Perak & an example of Oldtown Cafe  

Historical Financial Performance

Over the past 5 years, Oldtown's top-line has been rising steadily. Bottom-line was flattish due to higher opex that comes with a new factory & a larger chain of cafes. Nevertheless its net profit for the latest half-yearly result shows a breakout above the RM25 million mark. How did this happen? Let's zoom into its quarterly result.

Chart 1: Oldtown's last 10 Half-yearly P&L

Recent Financial Results

The latest quarterly results for QE31/3/2016 was announced on May 26. Its net profit rose 66% q-o-q or 80% y-o-y to RM18 million while revenue was mixed- up 2% q-o-q but down 4% y-o-y to RM105 million. 

Table 1: Oldtown's last 10 quarterly P&L

Chart 2: Oldtown's last 10 quarterly P&L

From the table & diagram below, we can see that revenue from cafe operation dropped 4% y-o-y while beverage manufacturing operation enjoyed a 22%-increase in revenue. At the same time, beverage manufacturing operation's profit margin rose to 31.4% from 20.8% while profit margin for cafe operation dropped from 9.2%  to 7.6%.

Table 2: Oldtown's Segmental Result for QE31/3/2016 & FYE31/3/2016

Chart 3: Oldtown's Segmental Result for QE31/3/2016 & FYE31/3/2016

Latest Financial Position

Oldtown's financial position as at 31/3/2016 is deemed satisfactory with current ratio at 4x while total liabilities to equity at 0.2x. Its cash in hand was RM154 million (or RM0.33 per share).


Oldtown (closed at RM1.83 this morning) is now trading at a PER of 15.7 times (based on last 4 quarters' EPS of 11.63 sen). If the net cash of RM0.33 per share is deducted, the PER would be lowered to 12.9 times. Its dividend yield is quite attractive at 4.9%.

Technical Outlook

Oldtown rose about 30% sine the announcement of its latest quarterly result on May 26. The sharp rally propelled the stock above its downtrend line at RM1.60 and the horizontal line at RM1.70.

Chart 4: Oldtown's weekly chart as at June 20, 2016 (Source: Kenanga/Chartnexus)

The daily MACD has crossed below the MACD Signal line- indicating consolidation ahead. The price may ease back to the horizontal line at RM1.70 to build a base.

Chart 5: Oldtown's daily chart as at June 20, 2016 (Source: Kenanga/Chartnexus)


Based on satisfactory financial performance, fair valuation & bullish technical outlook, Oldtown could be a good stock for long-term investment. Good entry level will be about RM1.70.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Oldtown.


ronnie said...

The level of activity at Oldtown outlets have picked up significantly this year at the expense of Papparich. I was having breakfast in an Oldtown outlet in Ipoh in the early part of this year. I was impressed with the menu.

Alex Lu said...

Hi ronnie

I have not eaten at an Oldtown cafe for a while. I was at Papparich outlet (near Menara MBPJ) yesterday. The crowd wasn't good. Most of the kopitiam cafes are affected by poor consumer sentiment. Oldtown is fortunate that it has an manufacturing operation to cushion the blow.

Unknown said...


Have you follow the Bloomberg talk by GrandPine Capital? Oldtown biggest business not the outlet by their sell of cafe online oversea. How true it is I don't know.