Malaysians love IPOs. And the more well-known or relatable the company is in their daily lives, the more hype it garners.
I have observed this from the IPO of Mr DIY Group (M) Bhd (KLSE: MRDIY) and Farm Fresh Bhd (KLSE: FFB). Mr DIY’s share price is still trading below its post IPO peak due to hype, while for FFB, there was a time where share prices plunged almost -40% from its IPO. These are businesses, loved by their consumers, but have seen volatile times, leaving some shareholders with losses instead of gains.
Some similarities can be observed in Singapore. Singaporeans swear by their Old Chang Kee curry puffs but the share prices of Old Chang Kee Ltd (SGX: 5ML) hasn’t breached S$0.80 per share in the last 5 years.
So will Oriental Kopi be different from its precursor – Old Town White Coffee Kopitiam?
Oriental Kopi 101
For the uninitiated Singaporeans, Oriental Kopitiam is a Malaysian Kopitiam serving delectable Malaysian local food and Nanyang-style brew coffee and tea. And the first Singaporean outlet opened on the 27th of November 2024 to great fanfare.
Currently, Oriental Kopitiam operates 14 branches, mainly located in Johor and Klang Valley. Food quality is certainly above average, with prices also above average as well. Despite the premium pricing, the increase of affluent consumers has led to snaking queues during peak hours. Oriental Coffee owns 100% of its 14 branches in Malaysia, and partners with Paradise Group for the Singapore venture.
The growth plan
Since Oriental has proven success in some of the most populous states like Johor, Selangor and Kuala Lumpur, Oriental plans to use proceeds from the IPO to expand its cafes and consumer-branded packaged foods.
Around 20% of the proceeds are earmarked for the expansion of cafes in various states within Malaysia. A new head office, central kitchen and warehouse will also be set up to streamline its operations, taking up around 29% of the proceeds raised.
What is surprising is the working capital requirement, which will be 41% of the proceeds raised.
The balance proceeds will then be used for marketing activities, expansion of its packaged food segment and listing expenses.
Brief financials
Revenue growth has been exploding, as it grew +273% in FY 2023 YoY and +208% in FY 2024.
I am surprised that Oriental Kopi has only 4 years of existence, yet is already pushing to IPO. That said, the top line growth still has plenty of legs, and that would be a strong justification to push for a premium valuation.
But when I checked the prospectus on its cafe opening plans, I am surprised that it will be opening only 3 cafes in 2026. That is just 2 years from now for a growth momentum to come to a halt.
Even though it might not boost the sexiest gross profit margin, the rolling out of new outlets will likely take the limelight on how much the company can grow for the next 5 years.
As the food service industry is brutal and unforgiving in its profit margins, one might not expect to see margins rising significantly to above current levels.
The management behind Oriental Kopitiam
The key management of the company is mainly the Chan family, led by Dato Calvin Chan Jian Chern. Dato Chan’s sister Chan Yen Min, and her husband Koay Song Leng also hold vital positions within the company.
Dato Calvin Chan is a seasoned entrepreneur. Although he had zero prior experience in the food service business, he was able to rapidly build a brand that resonates with the public, woo-ing crowds to his chain of café.
Growth roadmap outside of Malaysia
It is not easy growing a local favourite outside of its home country. I think plenty of existing seasoned veteran food entrepreneurs can attest to that. Toast Box, Old Chang Kee, Old Town White Coffee are all familiar café or kiosks that have tried to grow internationally after reaching saturation points in their home countries.
Although efforts were put in, not many can proudly proclaim that they have replicated the same success or durability they have in their home country. As for the likes of Old Town White Coffee, once a local favourite with its fair share of glory days, is now nothing but a distant memory.
Oriental Kopi initially signed a JV agreement with local Singapore food business Yew Kee Group (SGX: YK9) for their Singapore expansion, but the JV was terminated.
Oriental Kopi then partnered with another Singapore-based company Paradise Group for their Singapore JV expansion, which came to fruition in Q3’2024.
Can Nasi Lemak, Char Kuey Teow and White Coffee be like Haidilao?
The food scientist in me says this is highly impossible.
Even though we have tangible proof that it is possible to grow restaurants and café chains into a global mammoth business, from a food science and operational perspective, it is relatively impossible to replicate complex dishes like Nasi Lemak and Char Kuey Teow to a consistent standard that is able to secure thumbs up from Malaysians (and Singaporeans).
For the big fast food chains like McDonald’s and KFC, minor and standardized cooking instructions, like how long to grill a patty, and fry chicken pieces and French fries, are all ingrained into standard operating procedures.
The marinates, batter coating and complex preparations are all done at a factory or central kitchen to ensure quality and conformity. As for the case of Haidilao, as long as soup stocks and paste are consistent, and ingredient quality is maintained, there is little room for deviation.
This, however, is not so straightforward for more complex dishes like Malaysian cuisine, which usually have more nuances and require time and effort to churn out a masterpiece.
And Malaysians know a masterpiece when they come across one. Village Park Nasi Lemak, or the various Char Kuey Teow spots scattered around Penang still draw in crowds consistently over the years.
And quality can quickly drop a few notches when capitalism and operational efficiency such as centralized kitchens or factories come into play. Back in the days when I was still in the food manufacturing industry, we also called it the “Salami effect”.
Competitive moat
Is Oriental Kopi easily the top 5 best places for Malaysian food with comfort (with airconditioning)?
Absolutely!
Am I willing to wait 30-40 minutes just to get seated?
Hello no.
I have never been patient when it comes to queueing for good food. I have managed to do so only at Haidilao as they have really mastered the art of managing expectations. Even so, queueing for food is something I detest and don’t do.
That’s why I fancy restaurants with reservations above queueing.
And I guess plenty of Malaysians share the same sentiment. There are so many more choices to get your local food fixes.
However I have to say, those who love Oriental Kopi will see its branding and products as a solid moat, for now.
I still find it admirable that every time I dine there, they can still ensure the poached egg on top of the rice or noodles is always perfect. I can’t be too sure of that consistency 5-10 years down the road.
I am old enough to have fallen in and out of love with brands like Old Town White Coffee over the years. The food scientist in me knows how much is at stake for Oriental Kopi to grow and yet maintain its standards and quality.
End notes
Due to its fame and limelight, Oriental Kopi shares will be in the headlines in the coming weeks. Judging from its current size and growth prospects, there is plenty of growth planned, as it also just obtained its JAKIM Halal cert as an assurance to court the Malay market.
That also means much volatility awaits for the near-term play when the company finally goes public. However the investor in me will find the IPO valuation steep, and with no real competitive moat in a business that can be brutally unforgiving with only growth prospects in Malaysia and Singapore for its café.
The branded packaged product might help to grow its presence overseas, but the Malaysians and Singaporeans know that even the best 3-in-1 can never beat an honest sock or tarik tea or coffee.
Consumers, after all, are king when it comes to tasting and judging. So with its cafe only growing in Malaysia and at most, Singapore, how much would you think is fair for buying into the stock?
Is the 20 times earnings to price ratio justified for a cafe that will only set up 3 outlets in 2026? Kopi for thought!
[Oriental Kopi Holdings Bhd is priced at 44 sen per share, targeting RM183.96 million in proceeds and a market capitalisation of RM880 million. The IPO application will close on 10 January 10, with the listing planned for 23 January on the ACE Market.]
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