Maintain buy recommendation with an unchanged target price (TP) of RM3.15 per share: We maintain our positive stance on OldTown Bhd given that its second quarter of financial year 2018 (2QFY18) illustrates that the group, particularly its fast-moving consumer goods (FMCG) segment, is firmly on a growth path. We maintain our investment thesis that its expansion to regional markets, particularly China, offers multi-year growth potential, and valuation remains attractive despite the recent share price run-up.
The stock should trade closer to its regional peers. Our TP is higher than consensus’ as we peg Oldtown’s target price-earnings (PER) higher at 19 times, which is +1 standard deviation above its mean. As a stock with multi-year growth avenues and bright earnings prospects, we believe Oldtown deserves to trade at a higher PER. Furthermore, our target PER remains low relative to its regional peers’ average PER of 20 times. Stripping out net cash, our TP implies a forward PER (ex-cash) valuation of 16 times.
Stronger-than-expected contributions from its regional FMCG sales should provide further upside surprises. Furthermore, management is actively pursuing mergers and acquisitions opportunities to enhance its growth prospects.