Financial impact on OldTown minimal after explosion at central kitchen


It plans to open 12 to 15 new outlets in Malaysia, two to three in Singapore, six to eight in Indonesia and one in Melbourne or Sydney, Australia, said group managing director Lee Siew Heng

KUALA LUMPUR: AmInvestment Research expects OldTown to sustain only minimal financial impact from an explosion at its central food processing centre in Subang Jaya, Selangor last Thursday.

The research house said on Monday the building was OldTown’s central kitchen, related to its F&B segment.

 It is OldTown’s only central kitchen in Malaysia. Recall, OldTown had previously rationalised two of its central kitchens to its existing location in November 2016. The closure of its Ipoh-based central kitchen was due to cost-saving measures.  

“We gather from management that the explosion was not structure-wide but limited to a specific production room,” it said. 

AmInvestment Research said the production room produces OldTown’s proprietary paste and sauces. Operations have been temporarily ceased pending an investigation by the necessary authorities.  
The company will now outsource its food inputs as part of its contingency plan. 

“Based on our initial estimates, the operational impact to earnings is insignificant. Assuming 10% higher food input cost being outsourced for a month, it translates to a -0.8% impact to FY18 earnings. Its F&B segmental earnings contribute c:30% of total earnings. 

“We temporarily exclude the financial impact arising from structural damage seeing possible insurance entitlement,” it said. 

AmInvestment Research was cognizant of OldTown enduring the occasional operational hiccup. It suffered a fast moving consumer goods (FMCG) production glitch and a supply chain disruption over the past two years. 

“However unlike previously, this incident is a greater detriment to reputation than to its financial standing. 

“We opine there may have been a knee-jerk reaction as news trickled in last Thursday, with OldTown underperforming the broad market by 3.2%.  

“We ascribe investors to accumulate on any potential weakness based maintain our BUY recommendation and FV of RM3.20. 

“Our FV is based on 17.0 times CY18F P/E, which is a 20% discount to simple average PE of its FMCG peers. We continue to like OldTown for its export-driven growth and market leader as the No. 1 white coffee brand in its core markets,” said the research house.

 

Subscribe or renew your subscriptions to win prizes worth up to RM68,000!

Monthly Plan

RM13.90/month

Annual Plan

RM12.33/month

Billed as RM148.00/year

1 month

Free Trial

For new subscribers only


Cancel anytime. No ads. Auto-renewal. Unlimited access to the web and app. Personalised features. Members rewards.
Follow us on our official WhatsApp channel for breaking news alerts and key updates!
   

Next In Business News

AirAsia founder plots low-cost Dubai-like hub in Bangkok, Kuala Lumpur
China makes moves in digital culture market
Over 90% of entrepreneurs have yet to adopt e-invoicing - expert
Oil heads for weekly gains on anxiety over intensifying Ukraine war
S&P lowers outlook on three Adani units after US indictment of founder
Bumi Armada posts higher net profit of RM211.33mil in 3Q
Affin Bank's net profit jumps 45% to RM145.82mil in 3Q
KLCI remains positive as heavyweights bounce higher
Malaysia's inflation comes in at 1.9% in Oct
Globetronics shares rally in early trade after Taiwan deal

Others Also Read