Oriental Kopi Holdings Berhad - Growth Holds Steady
Mon, 26-May-2025 05:46 pm
by Chelsea Chew • Apex Research

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KOPI (0338)

Target Price (RM)

0.81

Recommendation

Buy

  • Oriental Kopi (KOPI) reported 2QFY25 CNP of RM14.7m (+8.6% qoq), bringing 6MFY25 CNP to RM28.2m, in line with ours and market’s expectations, accounting for 51.7% and 46.0% of respective full-year forecasts.

  • 2QFY25 CNP rose 8.6% qoq driven by stronger contribution from the Packaged Food segment (GP +16.5% qoq) and a surge in interest income.

  • For 2HFY25, we expect relatively flat to marginal growth in earnings contribution from the Café segment, premised to margin pressures from upfront costs of new store openings. Bulk of projected earnings growth is expected from the Packaged food segment, driven by the introduction of more FMCG products and the sale of higher-margin gift bags.

  • Following recent price correction, we upgrade to BUY with an unchanged TP of RM0.81, pegged to 20.0x PE multiple on FY26F EPS of 4.0sen, and ascribed with three-star ESG rating.

 

Results within expectations. Excluding one-off listing expenses (+RM0.9m), Oriental Kopi (KOPI) reported a 2QFY25 core net profit (CNP) of RM14.7m (+8.6% qoq), bringing the 6MFY25 total to RM28.2m. Reported numbers came in within ours and the market's full-year forecasts, accounting for 51.7% and 46.0% respectively of the market’s estimate.

 

QoQ. 2QFY25 CNP grew 8.6% qoq driven by stronger contribution from the Packaged Food segment (GP +16.5% qoq) and a surge in interest income (tripling qoq) following an increase in cash and bank balances (RM229.7m) as of 2QFY25 vs RM44.2m as of 1QFY25) arising from IPO proceeds. We believe the stronger contribution from the Packaged Food segment was likely due to better product mix from the sale of higher-margin FMCG products, such as hampers and gift boxes introduced in conjunction with Chinese New Year and Hari Raya celebration. This is evidenced by the segment’s margin expansion (+5.1%-pts qoq) despite 6.5% qoq drop in segmental revenue. The Café segment registered 1.1% qoq decline in GP despite a 5.0% increase in revenue, likely due to higher setup expenses, training costs and new hires for 2 new café stores opened in 2QFY25. Nevertheless, the revenue growth is commendable, especially considering Ramadan month fell in March 2025.

 

YoY. Since KOPI was only listed in Jan 2025, no yoy comparison is available.

 

Outlook. For 2HFY25, we expect relatively flat to marginal growth in earnings contribution from the Café segment, premised to margin pressures from upfront costs of new store openings. Bulk of projected earnings growth is expected from the Packaged food segment, driven by the introduction of more FMCG products at partner shelves and the sale of higher-margin gift bags. We anticipate meaningful earnings growth from the Café segment only in FY26, once the newly opened stores reach maturity. Most of the planned store openings are targeted for the coming two quarters to cater for year-end crowds, while the central kitchen expansion will be the key focus for 2026. Meanwhile, KOPI also targeting to achieve Shariah Compliance for its stock by the May 2025 review, as highlighted in the latest management briefing, which could pave the way for entry of Shariah-compliant funds. For overseas expansion, KOPI’s 30% JV with the Paradise Group has secured another location in Singapore, with plans to open a total of 3-4 additional cafes.

 

Earnings Revision. No change, given that reported earnings came within expectations.

 

Valuation. The recent price correction presents a better entry point for KOPI. As such, we upgrade our recommendation to BUY from HOLD, maintaining our target price of RM0.81/share, pegged to a 20.0x PE multiple on FY26F EPS of 4.0 sen. The target price incorporates a 0% ESG premium/discount, reflecting KOPI’s three-star ESG rating. Also, the upgrade reflects our view that the company’s fundamental outlook remains robust despite the current temporary market weakness.

 

Risks. (i) Food quality constraints, which could affect footfall (ii) Labour shortages (iii) Overreliance on third-party suppliers.

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