Saturday, June 25, 2011

Buying old IPO later? Oldtown?

After months of being away from the markets, my old investment engine is finally cranking but with no guarantee I'll be active. Oldtown is the first company that I study. No particular reason. It's a long prospectus, 754 pages. To be perfectly honest, I did not read the details. The following posting is just my impression after skimming the documents.

Oldtown is not that old. It's only 12 years old. Within a short span of time, the company grow from nothing to 250 million is really something. Management team is relatively young, mid thirties to early forties.

Oldtown is a cafe operator and also a beverage manufacturer. Based on their revenue mix, I think they are more of a cafe operator. 65%(166 mln) of their revenue is coming from cafe operations while the remaining 35%(89 mln) from beverage manufacturing. In fact I think their venture into cafe business was the main growth catalyst and is brilliant. A cup of coffee that they sold at a cafe will be equivalent to 10 packets of coffee sachets. Both businesses are profitable. The key issue I want to investigate is scalability, if I want to invest in this company.

They operate 182 Oldtown cafe and plan to open another 118 cafe withing three years. Average revenue(own cafe, product sales to franchisee and franchising) per outlet is 912 k. Another 118 new stores will add another 107 million potential revenue. Adding up $ 107 mln to $ 250 mln, the potential size is 357 million. Average profit after tax is in the region of 12-15%. Looking into 3 years forward, EPS will be around $ 0.16.

I did a rough calculation to just ensure my rationality is grounded. Some facts and assumptions tests. We have a population of 27 million and 20% are Chinese. Let's assume 30% of the Chinese probably will visit Oldtown 4 times per year and per spending per person is about 30. That will work out to be 194 mln revenue potential. Assuming I was wrong, there are other ethnics will visit oldtown, let's assume 10% of non-Chinese and hold other variable constant. So the potential revenue will be about $ 450 million. The question is can they expand their sales to non-Chinese?

The next question is can they go regional? Singaporean probably will still buy the concept of Kopi O and Nasi lemak but will Indonesian, Hong Kee, Thais, Filipinos? Regional cafes concept is difficult to succeed based on what I see now, unless they change their business model or menu. But the beverage side of business can go regional but it has to compete with giant multinational or local brands. And it's a volume game.

I think you know where I'm leading you. However, when this new IPO becomes old IPO and dips below crazy price ..... with their resilient business model ........ we can place some chips betting on reversion to mean. But I certainly will not subscribe to their IPO.


HLB said...

Hi Turtle

This idiot talked about you & Dali in his latest blogging again -


Hi Jackie ,did yr friend tell u samgang bought Dijacor-wa @0.38+ on 14/6/2011 ? in less than 2 weeks , we hv made > 30% returns liaooo, is this not making money in quiet mkt ? ^_-

Not making money in quiet mkt referring 2 who ? yr sifu darlie singh ? he called 2 buy EAH @ 0.51 N Muhibah @ 1.83 , how much they last transacted ? ^_- dont 4get oso his JCY @ 1.61 , OMG... JCY is now 0.60+ only, what a call by this "FUN" manager ^_-

Guys, let read what Jackie commented in lulu blog not so long ago >

jackie said...
a number of my friends are subscribers to his so-called private blog. they are complaining to me now as they are caught now with significant paper losses on quite a number of sam's so-called FA picks. i was told his excuse for the loss picks are when market is quiet, even good Qe will not be able to do anything to the stock price. Well do you agree with him? hahaha.
but why are there others who still make money now in the stock market when it is so quiet ?


dukuhead said...

i'm conserving cash and not buying any more shares or subscribing to any new ipos for now. at least not till the danger of a second dip/world recession has really passed. the markets are too jittery and unsettled. i see a couple of counters i'd like to accumulate but i'm playing a wait-and-see game. there's no hurry really.

ronnie said...

I decided to visit a number of Old Town outlets. The busiest was the outlet in LCCT. The rest were practically devoid of customers.

It appears that Papa Rich is mile more popular.