Maybank-Oldtown: research houses maintain 'buy' call on Oldtown Bhd

Maybank Investment Bank Research maintained a 'buy' call on OldTown Bhd with an unchanged target price of RM2.40, backed by the extension of its outlets in Indonesia and Australia.

It said OldTown had also identified two new markets namely, the 'halal' and kids-family to drive the cafe-chain operator's growth.

"On food and beverage operations, we expect topline growth to be supported by ongoing store openings, while pre-tax margins could remain mid-teens due to re-branding renovation of its outlets," it said in its research note today.

OldTown's pre-tax profit for the first quarter ended June 30, 2014 slipped two per cent to RM15.324 million from RM15.672 million recorded for the same period last year.

The group's revenue increased six per cent to RM97.854 million for the first quarter ended June 30, 2014 compared with RM91.239 million registered in the same period a year ago.

Maybank IB also expected the fast-moving consumer goods (FMCG) division to see steady growth as the group broadened its presence via the appointment of new distributors locally and overseas.

Meanwhile, AllianceDBS Research said OldTown has taken measures to improve its operating structure to tackle cost pressures.

The research house also maintained a 'buy' call on OldTown with a lower target price of RM2.25.

"Restructured distributorships and suppliers and automated production line will put the group on a stronger footing to resume its growth trajectory in financial year 2016," it added.

Hong Leong Investment Bank (HLIB) also revised upwards OldTown's valuation to a 'buy' with a lower target price of RM2.17.

"Despite the slower opening, management continues to view their progress in Malaysia to be on track. 108 franchise-operated outlets have renewed their agreements for another five years with a fee of RM10,000 per outlet," HLIB said.

The group has also incorporated a wholly-owned foreign enterprise in Shenzen, China, allowing OldTown to gain better control and monitoring its product pricing and channel development.

On the other hand, Kenanga Research which maintained an 'underperform' call with an unchanged target price of RM1.90, said it expected Oldtown's FMCG division to get tougher on the back of softer consumer sentiment and competition from both existing and new entrants.

It said the group had to incur extra cost in the form of price discounts in order to preserve market share.