KUALA LUMPUR (Jan 10): Oriental Kopi Holdings Bhd (KL:KOPI) could deliver a strong share price gain with above-peer valuations backed by robust earnings growth, according to two research houses starting coverage of the soon-to-be-listed café operator.
For Apex Securities, Oriental Kopi is a ‘buy’, with a target price of 81 sen, an 84% upside from its initial public offering (IPO) price of 44 sen. The company’s future earnings growth is backed by cost efficiencies, aggressive expansion, and same store sales growth, the house noted.
At the target price of 81 sen, Oriental Kopi would be trading at 20 times its forward earnings compared to peers' average of 15.5 times, a premium justified by strong net profit growth, Apex Securities said.
Established in December 2020, Oriental Kopi has rapidly expanded its footprint with 20 cafés across Malaysia and one in Singapore. It also sells in-store packaged coffee and tea, as well as other food such as spreads, pastries, instant noodles, and seasonal items such as moon cakes.
For the year ended Sept 30, 2024 (FY2024), Oriental Kopi’s net profit more than doubled to RM57.52 million, according to its prospectus launched on Monday.
For FY2025, Oriental Kopi’s net profit could grow 26% as its net margin tapers with the new central kitchen while new stores will take time to generate sales, according to Apex Securities’ forecasts. However, growth will pick up to 48% in FY2026 as operations mature, said the research house.
Tradeview Research is also initiating coverage of Oriental Kopi with a ‘buy’ recommendation. The house’s target price is 68 sen for a 55% return on the IPO price, which values the company at 22 times the projected earnings for FY2025.
“Despite economic uncertainties, consumers are dining out more frequently, driven by shifting behaviour patterns and a surge in tourist arrivals post-pandemic,” Tradeview said. “Oriental is well positioned to cater to this demand.”
Further, Oriental Kopi plans to expand the range of consumer-branded packaged foods, a segment that provides more than 50% gross margin compared to restaurant services. “We expect better profit margins as revenue grows,” Tradeview added.
Oriental Kopi’s IPO is raising up to RM183.96 million ahead of its listing on the ACE Market scheduled for Jan 23.
Out of the total, the company has allocated RM75.78 million of the IPO proceeds for working capital, and RM53.68 million to set up a new head office, central kitchen and warehouse. The company will also use RM36.4 million for the expansion of cafés within Malaysia.
The rest has been earmarked for marketing activities in foreign countries, expansion of its brands of packaged food segment, and to defray listing expenses.