Saturday, July 2, 2011

Oldtown's IPO - Certainly one of the more exciting company

More recently there are many more IPOs coming onstream. To me one of the more exciting one is Oldtown - compared to MSM, UOA and Bumi Armada although smaller in size. Why?

I regard Oldtown as a company with strong prospect compared to the other 3 above as it is a company which do standout among the local food chains. It is definitely easier to be identified with. Any company that raised eyebrows to Starbucks, McDonald with it managing to grow to 182 outlets within 6 years is no small feat. It just started its coffee chain operations in 2005 and from Oldtown, we would have seen somewhat similar concept as in Pappa Rich, Hai Lam Coffee, Station 1 and several other local chains. This goes to show that Oldtown has management that understand retail very well - while the others are trying to follow. Growing so quick in a short time is not easy.

While I do not fancy Oldtown's food, for a food outlet industry, its taste is not everything. It is about location and convenience - places that people can identify. Tell me you really love a McDonald's burger or Starbuck's coffee. It is about branding and Oldtown understands that. You will not see an Oldtown on a 4th Floor of a shopping complex. In a commercial area, you will be able to find an outlet Oldtown easily.

It is trying to raise some RM79+ million and post IPO, the market capitalisation would be RM412.5 million based on the IPO price of RM1.25. With the small issuance of 10 million stocks, do not even bother about applying for the stocks from the public offering.

Why is it a good prospect? Just look at the performance and to me it is believable...For a while there has not been a IPO with such exciting characteristics.

From PAT of 10.9 million in FY2006, it has grown to RM31.7 million last financial year. Revenue grew more than 3x over the 4-year period. The sprawling of new outlets over last few years has made the numbers make sense - which is why I said it is easily identifiable. It has strong cashflow as well which is why they have committed 50% of earnings for dividend payment.

Now, since we are not going for the public offering, at what price would it be made still buyable since its shares is scheduled to be tradeable from 13 July onward? At RM1.25 it is being offered at 13x PE. I have read some analysts comparing it to KFC (19x PE) and Berjaya Food (don't know and not interested as I could not identify myself with Kenny Rogers Roaster). Comparing with KFC is not wrong but I do not think it has the same growth prospects as Oldtown. While at one time KFC was attractive, at 19X PE it is not that great anymore. (The only good thing about KFC is that it has good dividend due to its holding company, QSR has huge debt to pay)

I think around RM1.45 (around 15x PE) is a good price to go in, that is if you can have some shares for that price.

Serious Investing!

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