OldTown current and future

Its two primary businesses - the cafe chain and the manufacturing of instant coffee/tea mixes - have being faring well and should continue to underpin earnings growth for the foreseeable growth.

Two capital market fundraising exercises - an IPO in 2011 and private placement in late 2012 - have filled its coffers which will allow the company to comfortably fund its planned expansion and give shareholders a decent yield.

In early April 2013, it had acquired a 70% stake in a coffee products distributor in HK, Macau and Guandong for about rm27 million.

With net cash totaling of rm143 million as at end FY2012, its balance sheet can well support its minimum 50% dividend policy payout policy. In market observers expect the company to gradually raise the payout ratio in line with improving cash flow from operations.

The Oldtown White Coffee cafe business accounted for roughly 60% of OldTown's turnover and 55% of pre tax profit in 2012.

The company intends to maintain a similar pace of expansion for the foreseeable future, with new outlets planned in Malaysia as well as in Indonesia, Singapore and China, the latter under a master franchise plants to set up a central kitchen facility in China within the year, which would speed up the rollout of outlets going forward.

As at end 2012, two thirds of its local outlets had been certified with the rest expected by end of first quarter of 2013.

Its first kiosk, in Suria KLCC is registering better than expected sales. This could be a new driver for growth going forward, capturing a different market segment without cannibalizing the existing cafes.

Its fast moving consumer goods business - manufacturing instant coffee and other beverages - is also facing well in an intensely competitive market.

In 2012, about half of the sales came from overseas markets. With the large addressable market, the company is upbeat on growth going forward.

Notably its foreign shareholding profile has seen sharp increase in the presence of foreign funds since its IPO, to about 37% as at end Feb 2013. OldTowb Intl, the controlling shareholder, pared its stake to 45.5% over the same period while local and institutional also saw their shareholdings decline. While the ability to attract foreign shareholders speaks well for the company's prospects, it may also lead to higher share price volatility in the future.

Positively the company's strong balance sheet - net cash of rm143 million as at end 2012 - and cash flow from operations will underpin steady dividends, which in turn should offer support to its share price.