Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: MAYBANK
KFC Holdings (M) Bhd
(May 26, RM8.52)
Maintain buy at RM8.50 with higher target price of RM9.50 (from RM7.90): The quietly spectacular performance of KFCH's local outlets led it to a strong start in 1Q10, benefiting also from more benign commodity prices and a favourable currency.
Consumer demand appears strongly resilient. We leave 2010-2011 estimates unchanged and introduce 2012 estimates. Our higher RM9.50 discounted cash flow-based (DCF) target price is based on more positive fundamentals beyond 2011.
KFCH's RM34.2 million 1Q10 net profit (+19.3% year-on-year; -2.3% quarter-on-quarter) was achieved from healthy consumer demand translating into 14.1% y-o-y revenue growth to RM600.7 million. This record-high revenue for its 1Q was matched by manageable raw material prices and unit costs that contributed to an even higher-than-revenue growth of 18.9% y-o-y in operating profit to RM51 million.
It's 1Q10 revenue and pre-tax profit from the ancillary division rose 31.9% and 70.6% y-o-y, to RM28.5 million and RM2.9 million respectively. Whilst impressive, the main growth contributor in absolute terms remained the local KFCH restaurants that posted revenue and pre-tax profit growth of RM53.3 million (+17.5%) and RM7.4 million (+21%) y-o-y to reach RM357.2 million and RM42.6 million, respectively. Although only one store in India was opened in 1Q10, initial signs are positive whilst KFCH's learning curve continues to smoothen over time. KFCH still hopes to open up to 30 stores over a three-year period although local expansion of 30-35 KFCH stores per annum would likely still drive overall earnings growth in 2010-2012.
The negative impact of fluctuations in foreign currencies such as the US dollar and Indian rupee is likely to be neutralised by an increasing share of earnings from its Singapore operations. Similarly, the underlying performance of its KFC stores across now four countries of operations (namely Brunei, India, Malaysia and Singapore) continues to be dynamic and resilient.
Our DCF-based target price rises to RM9.50 as we incorporate raised 2012's explicit forecasts from a more conservative semi-explicit base. ' Maybank IB Research, May 26
This article appeared in The Edge Financial Daily, May 27, 2010.
Company Name: KFC HOLDINGS (M) BHD
Research House: MAYBANK
KFC Holdings (M) Bhd
(May 26, RM8.52)
Maintain buy at RM8.50 with higher target price of RM9.50 (from RM7.90): The quietly spectacular performance of KFCH's local outlets led it to a strong start in 1Q10, benefiting also from more benign commodity prices and a favourable currency.
Consumer demand appears strongly resilient. We leave 2010-2011 estimates unchanged and introduce 2012 estimates. Our higher RM9.50 discounted cash flow-based (DCF) target price is based on more positive fundamentals beyond 2011.
KFCH's RM34.2 million 1Q10 net profit (+19.3% year-on-year; -2.3% quarter-on-quarter) was achieved from healthy consumer demand translating into 14.1% y-o-y revenue growth to RM600.7 million. This record-high revenue for its 1Q was matched by manageable raw material prices and unit costs that contributed to an even higher-than-revenue growth of 18.9% y-o-y in operating profit to RM51 million.
It's 1Q10 revenue and pre-tax profit from the ancillary division rose 31.9% and 70.6% y-o-y, to RM28.5 million and RM2.9 million respectively. Whilst impressive, the main growth contributor in absolute terms remained the local KFCH restaurants that posted revenue and pre-tax profit growth of RM53.3 million (+17.5%) and RM7.4 million (+21%) y-o-y to reach RM357.2 million and RM42.6 million, respectively. Although only one store in India was opened in 1Q10, initial signs are positive whilst KFCH's learning curve continues to smoothen over time. KFCH still hopes to open up to 30 stores over a three-year period although local expansion of 30-35 KFCH stores per annum would likely still drive overall earnings growth in 2010-2012.
The negative impact of fluctuations in foreign currencies such as the US dollar and Indian rupee is likely to be neutralised by an increasing share of earnings from its Singapore operations. Similarly, the underlying performance of its KFC stores across now four countries of operations (namely Brunei, India, Malaysia and Singapore) continues to be dynamic and resilient.
Our DCF-based target price rises to RM9.50 as we incorporate raised 2012's explicit forecasts from a more conservative semi-explicit base. ' Maybank IB Research, May 26
This article appeared in The Edge Financial Daily, May 27, 2010.
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