KOPI's 1HFY25 gross profit (GP) margins contracted by 4.6%-pts compared to FY24 due to volatile raw material costs, prompting management to seek cost-reducing supplier solutions.
Central Kitchen plan for 2026 faces delays as the initially earmarked Puchong land was found untenable, requiring them to seek a new location.
Oriental Kopi is now categorised as Shariah-compliant, potentially attracting new funds.
Upcoming 2025 expansions include a NEX Singapore store by Jun 2025 and 4QFY25 domestic openings at Aeon Malacca, Sunway Putra, and Sunway Carnival. KOPI aims for 12 new cafes by 2026, with 7 remaining after recent and upcoming openings, while also increasing Singapore's target to 5-8 total cafes.
We believe the recent price has factored in much of the positive catalyst. Consequently, we downgrade to HOLD with an unchanged TP of RM0.81, pegged to 20.0x PE multiple on FY26F EPS of 4.0sen, ascribed with three-star ESG rating.
We left KOPI’s briefing with the following key takeaways:
1HFY25 margins contraction. Gross profit (GP) margin contracted 4.6%-pts in 1HFY25 compared to FY24. Management attributes this to fluctuating raw material costs like santan and butter, extensively used in their FMCG products. To improve margins, the Group is actively negotiating with suppliers for alternative, cost-reducing solutions without compromising quality.
Central Kitchen updates. As previously noted in our quarterly report, KOPI intended to focus on Central Kitchen renovation and subsequent commencement by 2026. However, the initially earmarked Puchong land proved untenable, primarily due to its inability to be converted to an industrial title. Management also highlighted the presence of a Petronas gas pipeline beneath the site, a factor prompting a cautious avoidance of potential issues akin to those encountered in Putra Heights recently. Consequently, KOPI is now actively seeking a new location and will announce further details once they become available.
Update on Shariah Compliance. According to the Securities Commission's latest May 2025 review, Oriental Kopi is now officially Shariah-compliant. We deemed the inclusion into the Shairah compliant list to be beneficial as it paves the way for the entry of Shariah-compliant funds..
Expansion Updates. During this quarter, KOPI expanded with one new café at Senai Airport. In the next quarter, the Alamanda outlet will commence operations and begin contributing. Management noted that Alamanda experiences high foot traffic, predominantly from Malay ethnics. Given Putrajaya's 2024 population of 120,300, with 98% being Bumiputera, we are positive that this new opening will further expand earnings, especially now with Shariah compliance fund certified.
Moving forward, management has updated the tentative pipeline for 2025 café store expansion. By Jun 2025, Singapore will see another store open in NEX Singapore Shopping Mall. Domestically, several locations have been secured for 4QFY25 openings, including Aeon Malacca, Sunway Putra Mall, and Sunway Carnival Mall.
2026 expansion plans. KOPI targets opening 12 new café outlets between now and 2026. With 3 new outlets set to open in 4QFY25 and the 2 recent openings at Alamanda and Senai Airport, 7 more outlets remain to reach their internal target. Additionally, the Singapore expansion target has been revised to 5-8 café outlets in total, up from the previous 2-3 outlets.
More product mix launching. KOPI is actively expanding its packaged food line, with a pipeline including new white coffee flavours, cooking pastes, and ready-to-drink beverages. New products are initially test-launched in their own outlets, then rolled out to wider retail distribution upon proving successful.
Earnings Revision. We maintain our earnings forecasts for now.
Valuation. We believe the recent price has much factored in the positive catalyst. As such, we downgrade our recommendation to HOLD from BUY, 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. We reckon the recent surge in share price has reflected fundamentals prospects.
Risks. (i) Food quality constraints, which could affect footfall (ii) Labour shortages (iii) Overreliance on third-party suppliers.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.210973 | 4.249411 |
EUR | 4.954495 | 4.965490 |
CNY | 0.589445 | 0.590817 |
HKD | 0.536642 | 0.541158 |
SGD | 3.306006 | 3.333319 |