Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
KFC Holdings (M) Bhd
(July 25, RM3.87)
Maintain market perform at RM3.94 with fair value of RM4.25: KFCH currently has nine outlets in India, with three or four more in the advanced stages of construction. It targets to have 17 outlets by year-end, which is broadly in line with our assumptions of 16 stores by end-FY11. Based on the current progress of store openings, we believe KFCH should be able to achieve this target, although we do highlight that for 2012, KFCH would need to almost double its number of stores in India to 30 from 17, as per its agreement with Yum! As we have previously noted, KFCH's store openings in India have been challenging given the various issues with the renovation of the location, and also various approvals that caused some hiccups in its store openings.
KFCH in January 2010 bought Paramount International College for RM6.5 million and renamed it KFCH International College. KFCH College currently has two campuses, the first campus is in Puchong and a new campus in Bandar Dato' Onn, Johor, was launched in April. Its Johor campus is expected to be completed by 2015 and will bring total intake capacity to 12,000 students per year. The college's main courses include restaurant management, culinary arts and hotel management. KFCH is expecting to spend about RM25 million for refurbishment of the Puchong campus and initial renovations for the Johor campus. We expect contribution from KFCH College to the group's revenue and bottom line to be negligible in the near term. We believe KFCH's venture into the education business will help generate a skilled workforce for its restaurant operations.
KFCH plans to offer delivery service sometime in 2012, with a trial run in a few selected outlets in 3QFY11. Delivery service has been successful in Singapore, accounting for 14% to 15% of total revenues of its Singapore operations. But we believe that the delivery logistics will be different in Malaysia, given the smaller geographical size. Other than the delivery service, KFCH will continue to introduce three or four new products per annum, such as its Ole Pocketful and egg tarts.
Risks include: (i) bird/swine flu escalation; (ii) escalation of corn and soyabean prices, which would eat into margins; and (iii) deteriorating consumer spending power, resulting in lower same-store sales (SSS) growth.
We make no change to our earnings forecasts. We are positive that KFCH is continuing to offer new products and packages to drive its sales growth. But, we believe current valuations for KFCH imply limited upside to its share price, while we continue to be cautious on its shares, given the various repeated related party transactions with parent company Johor Corp. Our fair value is maintained at RM4.25, based on 17 times FY12 earnings per share. We reiterate our 'market perform' call on the stock. ' RHB Research, July 25
This article appeared in The Edge Financial Daily, July 26, 2011.
Company Name: KFC HOLDINGS (M) BHD
| Research House: RHB | Price Call: HOLD | Target Price: 4.25 |
KFC Holdings (M) Bhd
(July 25, RM3.87)
Maintain market perform at RM3.94 with fair value of RM4.25: KFCH currently has nine outlets in India, with three or four more in the advanced stages of construction. It targets to have 17 outlets by year-end, which is broadly in line with our assumptions of 16 stores by end-FY11. Based on the current progress of store openings, we believe KFCH should be able to achieve this target, although we do highlight that for 2012, KFCH would need to almost double its number of stores in India to 30 from 17, as per its agreement with Yum! As we have previously noted, KFCH's store openings in India have been challenging given the various issues with the renovation of the location, and also various approvals that caused some hiccups in its store openings.
KFCH in January 2010 bought Paramount International College for RM6.5 million and renamed it KFCH International College. KFCH College currently has two campuses, the first campus is in Puchong and a new campus in Bandar Dato' Onn, Johor, was launched in April. Its Johor campus is expected to be completed by 2015 and will bring total intake capacity to 12,000 students per year. The college's main courses include restaurant management, culinary arts and hotel management. KFCH is expecting to spend about RM25 million for refurbishment of the Puchong campus and initial renovations for the Johor campus. We expect contribution from KFCH College to the group's revenue and bottom line to be negligible in the near term. We believe KFCH's venture into the education business will help generate a skilled workforce for its restaurant operations.
KFCH plans to offer delivery service sometime in 2012, with a trial run in a few selected outlets in 3QFY11. Delivery service has been successful in Singapore, accounting for 14% to 15% of total revenues of its Singapore operations. But we believe that the delivery logistics will be different in Malaysia, given the smaller geographical size. Other than the delivery service, KFCH will continue to introduce three or four new products per annum, such as its Ole Pocketful and egg tarts.
Risks include: (i) bird/swine flu escalation; (ii) escalation of corn and soyabean prices, which would eat into margins; and (iii) deteriorating consumer spending power, resulting in lower same-store sales (SSS) growth.
We make no change to our earnings forecasts. We are positive that KFCH is continuing to offer new products and packages to drive its sales growth. But, we believe current valuations for KFCH imply limited upside to its share price, while we continue to be cautious on its shares, given the various repeated related party transactions with parent company Johor Corp. Our fair value is maintained at RM4.25, based on 17 times FY12 earnings per share. We reiterate our 'market perform' call on the stock. ' RHB Research, July 25
This article appeared in The Edge Financial Daily, July 26, 2011.
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