Executive Summary
Oriental Kopi operates 20 cafés including one retail speciality stores and commands a 0.35% market share in the Malaysia F&B market size of RM79bn in 2024.
Oriental Kopi’s revenue 3-year CAGR hits 112.4%, with a net profit margin of 15.6% to 19.7% in FY22-24.
Rapid expansion over the past four years has resulted in 20 operational cafes. With expectations of additional café outlets, this will result in potential robust earnings growth in FY25/FY26, at 26.3% yoy/48.4% yoy to RM54.5m/RM80.8m respectively.
We initiate coverage on Oriental Kopi with BUY recommendation with a target price of RM0.81 (84.1% potential capital upside from IPO price) based on P/E multiple of 20.0x pegged to FY26F core EPS of 4.0 sen.
Key Investment Highlights
Cafés expansion (Domestic and foreign expansion). As of Jan 2025, Oriental Kopi operates a total 20 cafes located in Malaysia and Singapore. Looking ahead in 2025, the Group plans to open another seven cafe outlets, followed by three additions in 2026, utilising proceeds raised from IPO. These new outlets will be located in high traffic areas across several states such as Penang, Klang Valley, Pahang, Malacca, Sabah, and Sarawak. Given the high demand in Singapore, Oriental Kopi is also considering expanding its geographical presence, but this may only take place beyond CY26.
Tourist arrivals anchored key café contribution. The café located at KLIA2 Departure and Arrival is one of the top sales cafés of the Group. With the higher tourist arrivals, Oriental Kopi could potentially capture larger market share on the in-house branded consumable goods via the purchase of goods from the store as souvenirs. According to MAHB filing and DOSM data, tourist arrivals 2024 have recovered close to pre-pandemic levels. This is mainly due to the visa-free from the Chinese and Indian tourist arrivals. (refer to page 9)
Potential growth in own brands of packaged foods. Oriental Kopi has identified significant growth potential in its owned brands of packaged foods. In Feb 2024, the Group exported its brands of packaged foods to Hong Kong using an indirect distribution channel strategy. Oriental Kopi plans to establish additional reseller partnerships in other foreign markets, including Singapore. Notable improvement in the sales contribution of its owned branded packaged foods from 5.5% to total revenue in FY22 to 8.4% to total revenue in FY23. Growth momentum sustained into FY24, hitting 13.0% of total revenue.
Halal certification in the bag. Oriental Kopi bagged its halal certificate in 2024 for certain cafés and all in-house packaging of branded consumable goods. The halal certificate helps the Group to register 20-30% of Bumiputera customers to its total customer mix, which attributed to significant growth in revenue during FY24. Looking ahead, the group aims to obtain more halal certificates for other stores to capture the untapped in selected areas.
Establishment of central kitchen. Oriental Kopi aims to establish a new central kitchen to reduce workload and support the targeted expansion towards 40 café outlets. The café will carry out minimal final operations, cooking, and plating. This new central kitchen accompanied with the warehouse and it is targeted to complete by Q4 CY26. As Oriental Kopi does not have an established central kitchen, its net profit margin is already at double digits of 15.6% in FY24. We believe it has more room to grow with establishing a central kitchen.
Established management team in F&B. Previous directorship in Golden Whale (Black Whale bubble tea), direct and indirect interest in Beautea Holdings. One of the key senior managements is the head chef of the Group, whom possess extensive experience within the F&B industry. Quality check is performed constantly in every 2-3 hours; personnel in charge of the store is required to randomly conduct food testing to ensure the quality of food to be served to customers meets certain level of requirement.
Strong earnings growth and stable margins. Oriental Kopi recorded a relatively stable GP margin, between 29-33% in recent years. This is due to higher contribution from packaged foods which yields better margins. Boiling down, the Group's net margins slipped from 19.7% in in FY22 to 15.1% in FY23 before stabilising at 15.6% in FY24. This decline was due to higher raw material and input costs, but improved operational efficiency and economies of scale helped maintain the recent financial year bottom-line margin. Still, we gather that core net profit has demonstrated impressive performance from FY22 to FY24, reaching RM43.1m, which represents a three-year compound annual growth rate (CAGR) of 112.4%. We reckon further growth are largely on the cards, driven by (i) operational cost efficiencies, (ii) aggressive expansion in various states within Malaysia, (iii) expansion on house brands packaged foods and (iv) assuming a 13%/42% SSSG growth in FY25F/FY26F.
Valuation & Recommendation. We initiate coverage on Oriental Kopi with a BUY recommendation with a target price of RM0.81 (84.1% potential capital upside from IPO price) by pegging its FY26F core EPS of 4.0 sen to PE of 20.0x. The assigned P/E represents c.30.0% premium to selected peers operating in FMCG retail services, which trades at an average forward PE of 15.5x for 2026F. The premium is justified, considering projected growth prospects and Oldtown Berhad valuations, which were privatised in 2017 at the acquisition PE multiple of 23.6x.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.461227 | 4.492117 |
EUR | 4.632123 | 4.637427 |
CNY | 0.613888 | 0.614502 |
HKD | 0.573047 | 0.577030 |
SGD | 3.281156 | 3.304154 |