HONG Leong IB Research has initiated its coverage of coffee chain Oriental Kopi Holdings Bhd which debuted in the ACE Market today (Jan 23) with a “buy” rating and a target price of 81 sen or a 45.7% premium over its initial public offering price of 44 sen.
The research house deemed as justified its target price based on 20 times Oriental Kopi’s FY2026 price-to-earnings (PE) ratio which is higher than its consumer coverage PE of 17.5 times given the latter’s strong track record of revenue and net profit CAGR (compound annual growth rate) which exceeded the industry average.
“Furthermore, with only four years of operations and a modest network of 20 outlets, Oriental Kopi – while still in its early stage – has presented substantial opportunities for growth,” projected analyst Syifaa’ Mahsuri Ismail in her initiate coverage review.
“While there is no similar peer comparison, we note that OldTown which was taken private in 2017 was valued at 23.6 times its FY2017 PE.”
Moving forward, HLIB Research expects Oriental Kopi to record FY2024-FY2027F revenue and net profit CAGR of 29% and 30% respectively.
“This projected growth will be driven by (i) the opening of 10/3 new cafes in FY2025/FY2026; and (ii) stable growth from the sales of packaged foods,” reckoned the research house.
“The company is committed to a 30% dividend payout policy. Based on its IPO price, its dividend yield stands at 2.3%.”
Oriental Kopi operates mainly cafe chain operations under the “Oriental Kopi” brand and engages in the distribution and retail of its branded packaged food products.
With its first cafe launched in its Johor home base in 2020, the group now has 19 company-owned cafes across Malaysia and one joint-venture cafe in Singapore as of October 2024
Based on the IPO price of 44 sen/share, the gross proceeds of approximately RM184.0 mil will be mainly utilised for: (i) the set-up of a new head office, central kitchen and warehouse; (ii) expansion of cafes in various states within Malaysia; (iii) expansion of its brands of packaged foods segment; (iv) marketing activities in foreign countries; (v) working capital; and (vii) listing expenses.
Domestically, Oriental Kopi is focusing on high-foot-traffic locations such as shopping malls for its café expansion in addition to expanding its international presence, starting with Singapore where it plans to open two additional cafes by 2025.
Simultaneously, efforts are underway to export packaged food products to markets like Singapore and Hong Kong.
“Besides, the management has shared plans for a focused expansion strategy by aiming for a total of some 50 outlets in Malaysia by prioritising only in high-foot-traffic locations,” noted HLIB Research
“This clinical approach is in contrast with competitors like Old Town, Papparich and Starbuck which operate hundreds of outlets.
“This quality-driven and location-centric expansion aligns with its commitment in maintaining excellence in both food quality and service standards.”
At 10.32am, Oriental Kopi which started its trading at 74 sen was up 41 sen or 93.18% to 85 sen with 467 million shares traded, thus valuing the company at RM1.7 bil. – Jan 23, 2025
