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More Than 35% Market Share In Malaysia; Revealing The OldTown Magic
By: Louis Kent Lee
Articles (199) Profile

Ever tried white coffee? It was one of the key products that got Ipoh noticed, and of course, consumers’ acceptance plus demand that followed thereafter.

OldTown, who was one of the pioneers for the commercialisation of large-scale white coffee processing, boasts more than 35 percent market share in the white coffee sub-segment in Malaysia.

Similarly, it also boasts about 12 percent market share in the coffee mix segment. Now, let’s take a look at some few key anchor investment merits of OldTown.

The Dual Sword Strategy That Works

OldTown wields a dual sword strategy that works like German engineering.

Its two key operations; Café Chain (F&B) and the beverage manufacturing (FMCG) business complement each other very well as a single brand strategy approach.

It has enabled the efficient cross-selling and brand building strategies of the group where the F&B segment expounds its footprints by opening café outlets, and the FMCG segment spearhead market penetration into new markets via modern trade channels.

Market Leader In Café/Coffeehouse Industry In Malaysia

Currently OldTown has a total chain of 246 café outlets in Malaysia, Singapore, Indonesia, and China.

OldTown leads the café industry in Malaysia with Starbucks, Papparich and Coffee Bean trailing behind. As of 9M15, sales of the F&B segment contributes approximately 53 percent of the group’s total revenue.

Mass Market And Halal Certified

OldTown’s café targets the mass market audience with an obvious product differential pricing model that’s apparent when compared to its peers. (e.g. less than RM5 for a cup of OldTown white coffee versus a cup of Americano in Starbucks at more than RM5 easily)

The selection of its locations at high traffic outlets, targeted set meals offerings in the breakfast, lunch, teabreak, dinner, and late night supper clusters gels the stickiness of repeat customers.

In Malaysia, more than 66 percent of the population is made up of Malays, and currently 20 to 25 percent of OldTown’s customer base is Malays.

All food and beverages sold at OldTown’s café outlets is Halal. In 2013, only about 178 outlets under its fleet of chains were Halal certified.

This effectively allows the group to tap effectively on multi-pronged promotional activities that include Hari Raya, the fasting month, and importantly, cater to multiple target consumer clusters.

Ramped Production Meets Strong Distribution

As a matter of fact, the company’s plant was already running at full capacity in 2013.

The group added a new beverage manufacturing facility that commenced operation in mid-2013, with enough unutilised capacity to enable the group to cope with rising demand for future growth in the next five years.

Increased capacity can only be viewed in good light with corresponding strength in distribution. The group’s distribution network spans across the ASEAN region with prominent light seen in Singapore, Hong Kong, Thailand and Taiwan.

An example of the strength of the group’s distribution power was when it first started out in Hong Kong with 0 percent market share to 15 percent , which looks to strengthen even further after it took up substantial controlling stake in Advanced City (ACL), which is also the distributor of its products in Hong Kong, Guangdong, and Macau.

OldTown’s strong relationship with Zurich – based DKSH also saw it leveraging DKSH’s wide net in Asia (eg Singapore, Thailand, Taiwan), which enabled OldTown to focus on modern trade sales channels like supermarkets/hypermarkets.

Strong Numbers

As a testament to its growing presence and ability to capitalise on store growth and its products from its FMCG sector, revenue has been steadily increasing over the past 3 years.

This is followed with steady year on year increases in its net income.

Below is a representation of the amount of growth in revenue, net income, operational cash flow, and free cash flow of the company.

Source: Company, Factset, Bloomberg

Notably, what caught my attention was the steady increases seen in its operating cash flow and free cash flow, where operating cash flow for FY14 actually eclipsed net income, endorsing the strength of OldTown’s operations generating cash.

As it was on an expansionary route to increase its store counts and production capacity over the past three years, the fact that free cash flow also sung the same steady increases over the three year period shows that OldTown’s expansionary measures are well contained.

Its operating margin (FY14) is also in the high teens (currently at 17.4 percent), which is higher than that of its close domestic peer such as Berjaya Food (16.3 percent).

Return on equity of 15.26 percent also ranks it higher than that of Berjaya Food (14.82 percent).

Total cash and cash equivalents have also grown more than 72 percent from RM96 million in FY11 to RM166 million in FY14.

Its current cash hoard is huge and makes up approximately 40 percent of its total assets. This is more than enough to pare off total liabilities of RM89.7 million for FY14.


OldTown’s Price Earnings (PE) is currently at 15.3x, which is considered not overtly expensive when decked to its 52 week PE range of 13.2x – 20.8x.

OldTown also boasts a dividend yield of some 3.6 percent, with a payout ratio of 50 percent.

We have been increasing our market coverage as we see your interests grow. To help us do better, we would love to hear your thoughts and​ feedback.

This article is brought to you by Bursa Malaysia Berhad. The research in this article was conducted independently by Pioneers & Leaders (Publishers) Pte Ltd (“Pioneers & Leaders”) and the views and opinions expressed in this article are Pioneers & Leaders’ own and do not represent the views and opinions of Bursa Malaysia. Bursa Malaysia does not warrant or represent, expressly or impliedly as to the accuracy, completeness and currency of the information in this article. In no event shall Bursa Malaysia be liable to the reader or any other third party for any claim howsoever arising out of or in relation to this article.
Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

Please click here for more information about this author.

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