New IPO: OldTown

OldTown Bhd is a home-grown proprietor involved in the white coffee business that also operates with an extensive chain of cafes in Malaysia. The group has a total of 182 café outlets in Malaysia, Singapore and Indonesia. It also distributes its coffee and other beverage products particularly in Malaysia, Singapore and Hong Kong although its products are also marketed worldwide.

Inspired to provide quality white coffee to Malaysians, the group's founders Go Ching Mun and Tan Say Yap created their own instant white coffee formula in 1999. The duo established their manufacturing operations in the same year under the "OLDTOWN" brand name and in 2005, expanded vertically into the food services segment under the "OLD TOWN WHITE COFFEE" brand name until today.

How far can the coffee's aroma go?

OldTown plans to open 27 more outlets in FY11, which will bring the total number of outlets to 209. The group also plans to relocate its food processing operations and manufacturing plant to a central location in Ipoh. Construction of the new plant started in 2Q2011 for completion by 2013. The new plant, once completed, is expected to ramp up the group‟s production capacity by 500%.

Valuations...

We remain neutral on the prospects of OldTown's F&B segment which contributes the bulk of its revenue due to stiff competition and rising costs. We value OldTown at 12.5x FY11 EPS, which translates into a fair value of RM1.34, or a 7.2% upside from the listing price of RM1.25. The group has recommended a dividend payout of no less than 50% for FY11/12, which translates into a divided yield of 4.3%-4.8%.

OSK Research

Source: OSK Research