PP 7767/09/2010(025354)

Malaysia RHB Research

Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New Listing 31 March 2010

MARKET DATELINE

Oversea Enterprise Issue / Offer : RM0.23

Price
Fair Value : RM0.25
Public Issue Of 56.9m Shares and Offer For Sale Of 9.5m
Shares

Table 1: Investment Statistics Bloomberg Ticker: OVSE MK

Pre-tax Net EPS

FYE Turnover Profit Profit EPS Growth PER P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (RMm) (sen) (%) (x) (x) (%) (x) (%)
2009 65.1 6.8 5.2 2.1 (13.7) 11.9 1.3 10.0 Net cash 0.0
2010f 75.6 9.0 6.8 2.8 31.5 9.0 1.2 12.7 Net cash 3.0
2011f 80.9 9.6 7.2 2.9 5.8 8.5 1.2 13.4 Net cash 3.1
2012f 86.2 10.1 7.6 3.1 5.8 8.1 1.2 14.0 Net cash 3.3
Valuations based on estimated fair value of RM0.25/share

Issued capital (m shares) 245.0 (RM0.20 par) Market capitalisation (RMm) 61.25

LISTING DETAILS
X Background. Oversea Enterprise Bhd (Oversea) history dates back to 1977 as a
Listing Sought ACE Market of
Chinese cuisine restaurant operator in Jalan Imbi and subsequently, diversified Bursa Malaysia
its operations into the manufacturing of moon cakes and other baked products in Listing Date 1 Apr 2010
1986. The group has since evolved and is now operating seven “Restoran Public Issue 56.9m shares
Oversea” chain of Chinese restaurants in Klang Valley (5) and Ipoh (2), one including:

“Restoran Oversea” dimsum outlet, one café and two manufacturing facilities. - 12.0m to
Malaysian public;
- 35.4m private
X Future plans include: 1) expansion of restaurant networks i.e. one restaurant placement; and
under “Restoran Oversea” Chinese restaurant in 2010, two new casual and - 9.5m to eligible
contemporary concept restaurants in Ipoh and Jakarta and one cafe; 2) employees.

upgrading and refurbishment of existing outlets to increase its seating capacity;

Offer for Sale 9.5m shares
3) setting up a licensing programme to accelerate expansion overseas namely
through private
Jakarta, Indonesia; Hong Kong; and Singapore; and 4) purchase of new placement.
machineries for its manufacturing facilities to improve product consistency and
MAJOR SHAREHOLDERS
quality.
Yu Soo Chye @ Yee Soo 33.7%
Chye
X Risks: 1) competition from other players due to low barrier of entry; 2) tarnish
of brand reputation and disruptions to its operations; and 3) dependency of key
personnel.
MANAGEMENT FORECAST

X Forecasts. We have projected Oversea to record a three-year net profit CAGR of FY10

13.8% from RM5.2m in FY09 to RM7.6m in FY12 based on our assumptions of Revenue (RM m) NA
Net Profit (RM m) NA
one new outlet p.a. and increase in manufacturing activities of a 3-year revenue
Net EPS (sen) NA
CAGR of 10.0%. Although Oversea does not have any specific dividend policy, we
Net PER (x) NA
have assumed a net dividend payout ratio of 30%, as management has guided
that Oversea would likely distribute dividends on a regular basis given its cash
generative business. This would translate to about 3.0-3.3% gross dividend yield
p.a. (based on our fair value).

X Valuations. We value Oversea at 9x CY10 EPS, a 10% discount to the historical

forward PE for food outlets in the region of 10x (reflecting the small market
capitalisation), thus arriving at a fair value of RM0.25.
Hoe Lee Leng
(603) 92802239
Please read important disclosures at the end of this report. hoe.lee.leng@rhb.com.my

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 31 March 2010

BUSINESS BACKGROUND

X Background. Oversea Enterprise Bhd (Oversea) history dates back to 1977 as a Chinese cuisine restaurant
operator in Jalan Imbi and subsequently, diversified its operations into the manufacturing of moon cakes and
other baked products in 1986. The group has since evolved and is now operating seven “Restoran Oversea”
chain of Chinese restaurants in Klang Valley (5) and Ipoh (2), one “Restoran Oversea” dimsum outlet, one
café and two manufacturing facilities.

Chart 1: Oversea Corporation Structure

Source: Company

X Products and services. Oversea operates three types of food services outlets i.e. Cantonese cuisine Chinese
restaurant; dimsum outlet; and Hong Kong style café. Meanwhile, its two manufacturing facilities located in
Shah Alam produces moon cakes, egg rolls and other baked products. Currently, Oversea exports its moon
cakes to Australia, US, Netherlands, Indonesia, China, New Zealand and Papua New Guinea.

Photo 1: “Restoran Oversea” Chain of Chinese Restaurants

Source: Company

OVERSEA 2 ENTERPRISE

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Photo 2: “Restoran Oversea” Dimsum Outlet

Source: Company

Photo 3: Hong Kong Style Café

Source: Company

Photo 4: Moon Cakes, Egg Rolls and Other Baked Products

Source: Company

X Key highlights. Key highlights for Oversea includes:

1. Established brand name and reputation. “Restoran Oversea” has been a well established brand name
for 33 years and has strengthened its brand equity throughout these years. One of the ways that Oversea
uses to strengthen its brand equity is through the manufacturing of moon cakes and other baked products
mainly through the marketing and sales of its own moon cake under the “Oversea” brand. Currently, the
moon cakes are sold in all Malaysian states as well as seven overseas countries (i.e. Australia, US,
Netherlands, Indonesia, China, New Zealand and Papua New Guinea).

2. Resilient and cash generative industry. Oversea operates in the food and beverage industry, which is
generally known as a resilient industry. Given that its sales are also cash in nature, Oversea benefits from
strong cash flow. This is evident in Oversea’s FCF, which rose at a 3-year CAGR of 27.5% from RM2.8m in
FY06 to RM5.8m in FY09.

3. Economies of scale. Oversea enjoys greater economies of scale through its network of restaurants, café
and “dim sum” outlet coupled with the manufacturing of its moon cakes and other baked products. This
would help to spread its fixed and operating costs, as well as personnel and advertising expenses.

OVERSEA 3 ENTERPRISE
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X Future plans.

1. Expansion of restaurant networks. Oversea plans to expand its network of restaurants in Malaysia
which includes: 1) one restaurant under “Restoran Oversea” Chinese restaurant in 2010; 2) two new
casual and contemporary concept restaurant in Ipoh and Jakarta under “Restoran Oversea” brand in 2010-
11; and 3) one café under “Tsim Tung” brand in Klang Valley in 2010-11. Total capex is estimated at
RM3.95m.

2. Upgrading and refurbishment of existing outlets. Oversea plans to spend RM1.5m for the upgrading
and refurbishment of existing Chinese restaurants to cater for expansion of its business mostly for the
catering of additional seating capacity. This will likely commence in 2010 and completed by end-2011.

3. Licensing business to accelerate expansion overseas. Oversea intends to expand its market
presence and accelerate its expansion plans overseas through the setting up of licensing programme. The
markets that Oversea is targeting include: Jakarta, Indonesia; Hong Kong; and Singapore. Total capex
expected for this expansion plan is RM100k.

4. New machineries. Oversea intends to spend RM500k to purchase new machineries for its manufacturing
facilities to improve the product consistency and quality.

X Risk factors.

1. Competition. Oversea is operating in an industry which is highly competitive with low barriers to entry.
Nevertheless, we believe that its long-established brand name together with reputation for fine Chinese
cuisine at affordable prices will mitigate any adverse impact from increasing competition.

2. Reputation and disruptions. Oversea depends on its reputation for its business. In the case of any food
contamination, this may affect the reputation as well as the operations of its chain of restaurants. The
restaurant business is also highly exposed to disaster risk such as fire and energy crisis, which could
ultimately result in a failure of operations.

3. Dependency on key personnel. The operation of Chinese restaurants is highly dependent on the
experience and culinary skill of its chefs. Management indicated that they have provided for attractive
remuneration packages and benefits to ensure that their chef turnover rate is low. Oversea is also a
member of The Malaysia Selangor and Federal Territory Ku Su Shin Choon Hung Restaurant Association
which provides them access to a pool of trained chefs from this association if the need arises.

X Utilisation of IPO proceeds. The gross proceeds from the public issue will be used mainly for capital
expenditure and business expansion plans, working capital and repayment of borrowings.

Table 2 : Utilisation Of IPO Proceeds

Timeframe For Utilisation Amount (RMm)

Capex and business expansion plans Within 2 years 6.05

Working capital Within 2 years 3.31

Repayment of borrowings Within 1 year 2.00

Estimated listing expensses Upon listing 1.73

TOTAL 13.09

Source : Prospectus

OVERSEA 4 ENTERPRISE
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X Earnings prospects.

1. 3-year CAGR PBT grew by 3.4%. While revenue registered a mere 3-year CAGR of 3.4% from
RM58.8m in FY06 to RM65.1m in FY09, PBT grew by a 3-year CAGR of 20.1% in the same period, which
we believe was driven largely by better economies of scale. Going forward, we expect Oversea to continue
to grow by 6-31% p.a. for FY10-12 driven by growth from the opening of two restaurants in 2008-09,
further expansion plans and increasing manufacturing activities.

2. Increasing stores, overseas expansion and recovery of global economy to drive future growth.
Going forward, we expect sales to increase, riding on Oversea’s expansion plans i.e. one restaurant under
“Restoran Oversea” Chinese restaurant in 2010; two new casual and contemporary concept restaurant in
Ipoh and Jakarta under “Restoran Oversea” brand; and one café under “Tsim Tung” brand in Klang Valley.

3. Zero gearing. Post-IPO, based on the proforma balance sheet, Oversea would end up with a net cash of
about RM5.3m. Given its low capex requirements over the next few years (of approximately RM1.5-2.0m
p.a. for the opening of one new retail outlet p.a.), we expect Oversea to remain in a net cash position over
the next few years.

Chart 2: FY06/09 Revenue Breakdown

F Y 0 6 / 0 9 R e v e nue B re a k do wn

21% 14%

7%

58%

Own retail o utlet

Third-party retail lo catio ns
Institutio ns
Retail chains o verseas

Source: Company

X Forecasts.

1) Project 3-year net profit CAGR of 13.8%. Based on our assumptions of one new outlet p.a. and
increase in manufacturing activities resulting in a 3-year revenue CAGR of 10.0%, we project Oversea to
record a three-year net profit CAGR of 13.8% from RM5.2m in FY09 to RM7.6m in FY12.

2) No specific dividend policy. Although Oversea does not have any specific dividend policy, we have
assumed a net dividend payout ratio of 30%, as management has guided that Oversea would likely
distribute dividends on a regular basis given its cash generative business. This would translate to about
3.0-3.3% gross dividend yield p.a. (based on our fair value).

X Valuations. For comparison purposes, the only direct listed peer we can compare to are KFCH and QSR, which
are currently trading at forward PER of 10x. We value Oversea at 9x CY10 EPS, a 10% discount to the historical
average forward PE of 10x for food outlets in the region (reflecting the small market capitalisation), thus
arriving at fair value of RM0.25.

OVERSEA 5 ENTERPRISE
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Table 3: Comparative Valuations

FY09 FY09
Bloomberg Market cap
Company Revenue FY09 PE (x) FY10 PE (x) Operating
ticker (RMm)
(RMm) Margin (%)
KFC Holdings (M) KFC MK 1556.5 2297.4 11.9 10.84 8.5
QSR Brands QSR MK 942.2 2760.3 10.1 9.4 8.8
Food Junction FOOD SP 68.4 108.7 8.2 - 8.8
Soup Restaurant
Group SOUP SP 64.5 108.2 4.6 - 9.6
Oishi Group OISHI TB 1200.0 712.8 16.0 - 10.3
Simple average 10.2 10.1 9.2
Oversea 56.4 86.2 11.9 9.0 11.0

Source: RHBRI and Bloomberg

Table 4. Earnings Forecasts

FYE Dec (RMm) 2009 2010f 2011f 2012f

Revenue 65.1 75.6 80.9 86.2

Growth (%) 3.6 16.2 7.0 6.6

Gross Profit 35.9 42.0 44.6 47.3

Gross margin (%) 55.2 55.5 55.1 54.9

EBITDA 9.9 12.2 12.8 13.4

EBITDA margins (%) 15.3 16.2 15.8 15.6
Depreciation & 2.8 3.0 3.0 3.0
amortisation

EBIT 12.7 15.2 15.8 16.4

Finance cost -0.4 -0.2 -0.2 -0.2

PBT 6.8 9.0 9.6 10.1

Tax -1.7 -2.3 -2.4 -2.5
Effective tax rate (%) 24.5 25.0 25.0 25.0

Net profit 5.2 6.8 7.2 7.6

Source: Company data, RHBRI’s estimates and forecasts

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable
law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice,
and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This
report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything
stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or
its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and
objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors
independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a
particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates,
employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report.

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providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member
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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective
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banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

OVERSEA 6 ENTERPRISE

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to
take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for
the actions of third parties in this respect.

OVERSEA 7 ENTERPRISE

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AND RESEARCH OFFICES
5 RESOURCES

MALAYSIA
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Director

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Additional information on recommended securities, subject to the duties of confidentiality, will be made available upon
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