Oldtown: Large funds are for easy to be understood companies

Usually large funds may seem to be going after difficult companies - in actual fact, they are not. Fidelity made large investments into Jobstreet only to reduce its holdings upon announcement of the sale to Seek.com. Just announced, Oldtown is invested by Franklin, a fund managed under Franklin Templeton (one of the largest funds in US).

Oldtown may seem to be complex but in actual fact it is a very easy to be understood company. It is one of the better performing IPOs of recent times and for a company to reach its current size in a short period of time, it is no easy feat. Recently, Oldtown has experienced a stagnation in revenue and income but over the long run I suspect it will be able to adjust itself. Oldtown is no doubt the type of company which I like - still.

Because South East Asia is one of the few pockets of growth for many foreign companies, typically companies such as Oldtown would be an attractive target for them. Over the last few years, companies like Heineken over its purchase of Asia Pacific Breweries, insurance companies in looking for targets in South East Asia, it would not be a surprise if over time some of these brand names are acquired at a high PE premium.

Oldtown: How do you turn away from this kind of rumour?

On a lighter side, since today is a Friday (and my blog has been on more serious stuffs all this while), I received email for the below topic on apparently, our PM's wife - Datin Seri Rosmah is now the owner of Oldtown.

Well, I think this is a rumour. There are nothing to substantiate this and as far as I can see Oldtown is still a public company. Notice, the word "Bought over" and it basically means in control. I think sometimes rumour can be way overdone.

Understand the "nominee" thing, but there are no facts to proof on this. No announcements - nothing. No shares changed hands in large quantities. Anyway, the way these things have been circulating around is a bit too much. Not protecting anyone here...

Subject:: ROSMAH NOW OWNS IPOH OLD TOWN KOPITIAM Yes, you heard it right. This is no rumour !! Rosmah, ............, has bought over the ubiquitous "Ipoh Old Town White Coffee Kopitiam".  Isn't it amazing? First, the big diamond ring, then the posh and unaffordable handbags and now this? Where does she get all the $$$$? Do your maths, guys. Even if her parents started savings when Rosmah was still in her mother's womb and she carried on since a toddler, it will take, like the song says- as long as the 12th of never... Now you get why we have to continue paying North-South Highway tolls even after they have made three folds profit of its capital outlay.. Now you understand why Penang Port was awarded to Syed Mokhtar? Why AES was privatized and we have to pay full summon of RM300?? Why they coveted but failed to implement the National Medical Insurance scheme ? Why they turned to brain-washing mechanisms such as BTN (Biro Tata Negara) to champion the cause of -------------------- Enough said and what are we going to do about it ??  Yeah..I heard you loud and clear....START SPREADING THE WORDS.... BOYCOTT IPOH OLD TOWN WHITE COFFEE KOPITIAM OR BUST!!!

Oldtown: Dividends and placements should not mix

I am an investor who is trying to look at things rationally - sometimes perhaps overly rational.

What are the purposes of equity? Fund raising when you need them. Share them when you have excess cash. The sharing can be dividends, capital repayment (one of the popular one nowadays due to tax reasons) and even share buyback as by repurchasing, companies which have excess cash and deem their stocks to be undervalued will be reducing stock holders from the market - a positive.

Oldtown (a business which I like) just got listed a year ago. It promised 50% of dividends to be paid from its profits. Malaysian companies now tend to declare generous dividends which is a good thing - but sometimes has its limitations. It is no wonder that consultants advice for these directors and controlling shareholders to issue generous dividends if possible. Hence, 50% from profits is generous with Oldtown's decent profits.

Today, it announced of potentially issuing up to 10% private placement of shares. That will raise up to another RM60 million for the company and will increase the paid up share capital of the company. See below. The exercise will definitely dilute the EPS of the company further.

Now, what I boggles me is that it still has cash as seen below.

Debt is very minimal (about RM12 million) for the company especially after the fund raising from IPO done last year. It however puts the reason for this private placement as reducing interests costs?! My question is, isn't interests costs low nowadays, especially for companies that have good cashflows and balance sheet?

If it needs more funds, why not pay less dividends? It does not need to be gung ho and pays 50%. These kind of exercise is not right - of course sometimes you know the placements may not be as simple as it seems.

Oldtown: Insider Trading is not something you should do a lot!

Oldtown has created a brand for itself. Although I like the company until I have purchased some of its shares, the recent action of buying and selling is not something which I like.

See below.

 Bought shares at RM0.90 and RM0.92

Sold small quantities at RM2.03 and RM2.04

Of course there are many companies who do this, but most of them have no business that are decent enough for them to concentrate on building. Oldtown has, at least I think so!

Now the transactions above are peanuts, and I do not believe that you are selling these for the sake of cashing out as the recent RM0.04 dividend which you have received, easily could have net more than RM6 million AND should be more than enough for you to not needing to transact the shares (IN SUCH SMALL VOLUME). I believe these are to show that you are cashing out at a price so that speculators believe at this price your share is overly expensive and this is to allow yourself and the rest to move in at a lower price.

But remember, you are the face of Oldtown and it is not the right thing to do as it will just create non-confidence to the management or owner majority shareholder.

Although you may say I am angry which I am not as I have experienced this often enough but being a listed company, you do not want to create suspicion in your handling of your company. As it is there are quite a lot of inter-company trades in your balance sheet!

As a company which has done so much, you should concentrate on building the company and brand and not too concern on how people will second-guess your action in the share market.

Portfolio Update - 18 June 2012

From the last update on 6 April 2012, there were no change in the portfolio. I still maintain the 4 stocks in the portfolio i.e. DKSH, AEON, Oldtown and Wellcall. I have also mentioned why I like these 4 stocks in the previous update.

I believe that if there are no necessity to change the holdings, don't change. In terms of performance, over the period of 507 days since the portfolio was created, it achieved a nice 81.88% return thumping the KLCI (4.11%) and Fixed Deposits at 3.2% fixed rate (4.23%).

You would have noticed that among the 4 stocks, the largest is AEON which only has a RM3.2 billion market capitalization. None of them are KLCI stocks. The other 3 are below RM1 billion stocks. If you follow my blog, this does not mean I do not like large cap stocks but to me sometimes these stocks are dominated by EPF which is the largest fund by far. Their action can move any stocks in Malaysia hence it is difficult to anticipate what their next move be like. Anyway, stocks that are invested by EPF or even Khazanah, although some of them are quality stocks are normally quite fully priced, I believe. I am not saying they are doing the wrong thing as it is not easy to manage a RM470billion fund than managing a RM50k personal fund.

Also, if you check around seldom analysts cover stocks such as DKSH, Wellcall or even Oldtown. In fact, I have read more sell calls for Oldtown than buy call which is rare. Analysts tend to have more buy calls than sell calls as by having sell calls they have nothing to "sell".

This portfolio is not for any reader to follow my call as these are purely my own decision and opinion. Any decisions to buy or sell is entirely up to you. The reason for me to do this is to show that by being diligent and if we have a certain program, stocks may be a better longer term investment than your safer bet of putting money in FD or under our bed. Some people may like gold, some may like properties - go ahead if you think is right. Just that I prefer stocks.

Earlier updates:

6 April 2012

27 May 2011 
6 April 2011
14 Feb 2011 
 

Sold Airasia and bought Oldtown

I just sold Airasia, basically took profit (made RM1,653.36) and bought 6,200 units of Oldtown.

Reason for doing so is that I have liked Oldtown in my previous writing. Now the price is below its IPO price of RM1.25 i.e. I bought at RM1.15 which is amazing as I get to buy much lower than the price I envisioned would have put my hands in - the latest quarterly report of 30 June 2011, I do not see any reasons for me to change my view on this coffee chain. It has built itself into a strong brand. Ironically I am selling a strong brand as well - Airasia.

Why I sold Airasia? If you previously read some of my blogs, while I like this airline, I could not comprehend the deal with MAS. Anything I am not very sure, well I do not like and this deal with MAS is big, although may benefit Airasia in the long run.

Anyway, Oldtown will bring much better cashflow than Airasia. Airasia is not a cashcow while Oldtown has a very good chance of building itself towards a cash cow. Hey! it just announced a 0.025 dividend - keep it up.

How does my investment position look like now?

Serious Investing!

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!