KFC Holdings (M) - Privatisation to be completed by year-end? BUY

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD

Research House: AMMB

Price Call: BUY

Target Price: 4.15

- Johor Corp's (JCorp) president and chief executiveKamaruzzaman Abu Kassim said the proposed privatisation of KFC Holdings (KFC)and QSR Brands Bhd (QSR) is on track and that there are no objections from Yum!Brands, according to local dailies.  

- It is understood JCorp has been actively briefing theowner of the KFC franchise, Yum! Brands, in arriving at the current terms ofunderstanding, but has yet to make a formal application.  

- Nevertheless, we see this development as a positive sign.As it is, JCorp's president is confident of concluding the privatisationexercise by the year-end after a longer-than- expected delay.

- On a separate matter, JCorp is looking at raising RM3bilthrough the issuance of 'sukuk wakalah' Islamic bonds with a guarantee from thefederal government. 

- The proceeds will be used to settle JCorp's debtrepayments due in July 2012. 

- KFC recently launched a new marketing campaign based on athematic extension of its 'So Good' tagline at a RM4mil investment cost. Thegroup expects the A&P drive to boost sales by 10%-15% in 2QFY12.

- KFC has allocated a RM63mil capex for KFC restaurantoutlet expansion this year. The group will be adding 15 new outlets in Malaysiaand 9 in India, for which we have taken into account into our earnings forecastmodel.    

- Maintain BUY with an unchanged fair value of RM4.15/share,based on a fair PE of 18x FY13F earnings. We like the group's high cashgenerative food business model on the back of an established global brandequity, with stable restaurant sales in Malaysia and exciting growth prospectsin India.   

Source: AmeSecurities