KUALA LUMPUR: Hong Leong Investment Bank Research (HLIB) is positive on Oldtown Bhd ’s Shanghai licensing area agreement.
“While we are positive on the latest development, we deem the latest development within our expectation.
“The expansion of the café division to Hong Kong, Myanmar and Jiangsu and Fujian Provinces (China) since late-2016 represents part of Oldtown’s expansion plans for its fast-moving consumer goods (FMCG) segment,” HLIB said.
Oldtown announced that it had entered into a territorial license agreement (TLA) with Xiamen Kuaike Investment (XKI) to operate cafe outlets in Shanghai, China.
As part of the agreement, XKI will be granted the exclusive right to operate café outlets within the territory and/or to grant sub-licenses in the territory to other operators.
Nonetheless, HLIB did not expect the latest announcement to have a significant effect on Oldtown’s earnings
HLIB noted that Oldtown’s FMCG exports were accelerating at a rapid pace which would provide significant revenue contributions for the group going forward.
“Additionally, the opening of new cafe outlets domestically should take advantage of the recovering consumer sentiment.
“Despite this, we reckon growth prospects are already priced in at current levels,” it added.
HLIB has maintained its “hold” call on Oldtown with a target price of RM2.75 based on unchanged 17 times on revised FY19 earnings per share.