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

KFC Holdings - What's for dinner? BUY

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

Research House: AMMB

Price Call: BUY

Target Price: 4.15

McDonalds' Malaysia (McD) recently unveiled 'McValue Dinner'combo meals, targeted at dinner crowds. Essentially, 'McValue Dinner' isan  extension of McD's long-running 'McValueLunch' promotion.

We note that both promotions offer same discounts of up to36% off the respective standard combo prices. The difference is that the 10selected combo meals are now also available from 6pm-9pm, daily, albeit for alimited time only.

While 'McValue Dinner' is not new, we observed that thepromotion is normally conducted in conjunction with the Hari Raya Puasa period.

We are not too concerned about this latest development.Marketing push by operators via new product launches and value propositions isin line with industry practice, especially during 1H given the lack of majorfestivities.

We expect an insignificant impact on KFC restaurant salesover the long run, though dinner sales volume could soften in the short term.We take comfort that KFC Holdings (KFC) retains a dominant market share of dinnerticket sales among the operators. Dinner sales constitute an estimated 30%-35%of KFC's group turnover.

We are keeping our earnings forecast unchanged, underpinnedby our assumption of 36 additional KFC stores for FY12F. The group openedequivalent new KFC stores across Malaysia, Singapore, Brunei and India lastyear.

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 

KFC Holdings (Malaysia): Maintain Hold - Stable growth from Malaysian operations

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

Research House: MAYBANK

Price Call: HOLD

Target Price: 4.00

Net profit declined in 2011. Net profit of RM144m (-8% YoY) was in line with our estimates of RM147m but below consensus' RM157m. Total revenue grew 11% YoY, driven by healthy sales growth across all divisions. Our forecasts are maintained, as are our Hold call and TP of RM4.00, equivalent to the offer price by Massive Equity.

Maybank Research 29 Feb 2012

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KFC (FV RM4.00 - NEUTRAL) FY11 Results Review: Not so "Finger Lickin' Good"

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

Research House: OSK

Price Call: HOLD

Target Price: 4.00

KFC's  full yearearnings were below consensus but within our estimates. The stronger revenue(+11%) was attributed to better performance across all segments but its corenet profit fell 4.1% y-o-y due to higher operating expenses. EBIT margincontinue to shrink, dipping by 0.8% on costlier input and higher expansion expenditure.Maintain NEUTRAL, with our FV unchanged at RM4.00.

In line.  KFC's FY11 revenue jumped 11% y-o-y from RM2.5bn to RM2.8bn, largely contributedby higher revenue from its Malaysia and overseas operations. The opening of 24new restaurants, introduction of new products and effective marketing programs boostedrevenue at its Malaysian operations (+10.6%) while revenue from its overseas operationsimproved 14.9% y-o-y to RM449.4m from RM391m previously. Revenue in theintegrated poultry and ancillary segments grew by 10% and 2.9% respectivelywhile revenue at the education division soared 327% y-o-y. The FY11 PBT waslower than that in the previous year, during which  KFC recorded a net surplus of RM6.7m from revaluationof properties. Excluding the exceptional gain, the group's PBT was still flatat RM121.5m vs RM121.1m y-o-y given expenses from new openings and higher raw materialcosts. Despite the flat PBT, core net profit was lower by 4.1% y-o-y dueto  a higher tax rate. Q-o-q, the group'stop- and bottom-lines expanded by 9.9% and 13.4% respectively, spurred by theholiday and festive seasons.

Leaner margin.  EBIT margin slipped 0.8% from 8.7% to 7.9%,with the integrated poultry and education segments being the major drags. Thethinner margins from integrated poultry were mainly due to: i) the highercommodity prices in producing feed for broiler farming, ii) higher energy andstorage costs, and iii) higher cost to buy broilers from the open market tomeet the increasing demand from its Malaysian operation. The higher operatingexpenses incurred in setting up its new campuses in Johor and Selangor andhigher marketing cost to boost student intake also  played a part  in chipping off margins in the educationdivision.

Maintain  NEUTRAL. We remain cautious on KFC's prospects in light of a recent incidentcaught on  Youtube purportedly  depicting unruly behaviour among KFC employees.This  may dampen customer sentimentfor  the time being. Maintain NEUTRAL,with our FV at RM4.00, based on the takeover offer price.

Source: OSK188

KFC Holdings (Hold) Boards accepted offer

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

Research House: MAYBANK

Price Call: HOLD

Target Price: 4.00

Accepts offer. KFC's board has accepted MESB's offer to take over KFC's assets and liabilities, and it does not intend to seek alternative bids. We maintain that the offer price of RM4.00 per KFC share is fair to minorities because it values KFC at a 2012 PER of 19.4x and 2.6x P/B, based on our forecasts. The high prospective PER is fair for an M&A involving an entire business - our previous fair value for KFC shares was RM3.12 based on DCF which implies 15x 2012 PER.

Maybank research (22 December 2011)

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Felda Eyeing KFC, QSR Too?

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

Research House: OSK

Price Call: HOLD

Target Price: 3.97

KFC Holdings (Hold): Assurance of full distribution

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

Research House: MAYBANK

Price Call: HOLD

Target Price: 4.00

Offer price is attractive. Following from our meeting with Massive Equity Sdn Bhd (MESB), the 51:49 joint venture between Johor Corp and CVC Capital Partners Asia III, management assures that there will be full distribution of proceeds up the chain to shareholders of Kulim from the acquisition of QSR's and KFC's assets/liabs and that the latter two companies will be delisted. We maintain that the proposed offer price of RM4/KFC share is attractive to shareholders, pricing the stock at a prospective 2012 PER of 19.4x, based on our forecasts.

Maybank research (16 December 2011)

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KFC Holdings (Malaysia) (Hold): A yummy offer

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

Research House: MAYBANK

Price Call: HOLD

Target Price: 4.00

A RM3.2b offer. Massive Equity Sdn Bhd (MESB), jointly owned by Johor Corporation (51%) and CVC Capital Partners Asia III Limited (49%), has proposed to acquire the entire business, assets and liabilities of KFC at an aggregate cash consideration equivalent to RM4/share and RM1/warrant. Cumulatively, this values KFC's entire business at RM3.2b. We maintain our Hold call with a raised TP of RM4 to reflect the offer price, which we believe is attractive to shareholders.


Maybank research (15 December 2011)

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RHBInvest Research Highlights 15th December 2011

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD

Research House: RHB

Price Call: BUY

Target Price: 2.94

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

Research House: RHB

Price Call: TRADING BUY

Target Price: 4.00

15th December 2011

 

Top Story

Market Review ' The agony and the ecstasy Market Update -          In 2011, the financial markets were temperamental, with contrasting performance in the FBM EMAS between 1H (+4.5%) and 2H (-7.4%), and between the 3Q (-13.3%) and 4Q (+6.8%). -          In the last 37 years, there have been more good years (25 with positive annual returns) than bad (12 giving negative returns). While this does not guarantee another positive year for 2012, liquidity remains the key change agent in the current financial markets.

Corporate Highlights

Axiata ' Upbeat on revenue growth but margins a concern                                        Market Perform Briefing Note -          For 2012, management believes Axiata may be able to sustain around the same level of revenue growth seen in 2011 (7% KPI target after adjusting for stronger RM). However, management acknowledges there may be pressure on EBITDA margins, mainly attributable to XL.   VS Industry ' New revenue boost but risks remain                              Underperform (downgraded) Visit Note -          We attended the opening ceremony of a new factory for the production of Keurig Coffee Brewers. -          Keurig is a pioneer and leading manufacturer of gourmet single-cup brewing systems that mainly caters to the US and Canada markets. -          VSI is optimistic on the prospects of this new venture as it could potentially drive earnings in the longer-term.   KFC Holdings ' JCorp offers to buy the assets and liabilities of KFCH and QSR             Trading Buy News Update -          Both KFCH and QSR received an offer by Massive Equity (MESB) for the acquisition of their assets and liabilities for an effective RM4/share and RM6.80/share respectively. MESB is a SPV owned by JCorp (51%) and CVC Capital (49%). The offer would remain open for acceptance until 21 Dec, after which the offer would be withdrawn. -          Takeover valuations for both companies seem fair. Given that the buyers include JCorp (KFCH and QSR's ultimate owners), we believe the deal will most likely go through. We thus revise our call on KFCH to Trading Buy (from outperform) with a new fair value of RM4/share, which represents the offer price of KFCH's assets and liabilities. -          Related stories: KFCH Company Update ' Offer Price of RM5.60 For QSR's Business (23 Nov 2010); KFCH Company Update ' Another Offer To Buy QSR; KFCH Could Be Privatised (26 Nov 2010)   Kencana ' Kicking off favourably                                                                                  Outperform Results Note -          1QFY7/12 net profit came in within our expectations (27.6%) but above consensus (31%). Numbers were mainly bumped by start-up of AME earnings and better margins from one of its divisions. We understand that the company will seek shareholders' approval for the merger with Sapuracrest at its EGM today. -          Outperform call and fair value of RM2.94/share maintained. Investors should look to the stock for access to IKB's potential CY13 earnings growth which is estimated to be around 20.1%.

 

KFC Holdings (Hold): Below expectations

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

Research House: MAYBANK

Price Call: HOLD

Target Price: 3.12

3Q11 earnings below expectation. 9M11 net profit of RM106m merely made up 62% and 64% of our full-year forecast and consensus. Pretax profit dropped across all segments except for KFC Malaysia. 3Q11 net profit of RM34m came below our expectation while we were expecting stronger earnings in 2H. We maintain our Hold call but lower the DCF-based TP to RM3.12 following our earnings downgrade.

Maybank research (29 November 2011)

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KFCH's earnings outlook good despite gloomy economy

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

Research House: RHB

Price Call: BUY

Target Price: 3.50

KFC Holdings (M) Bhd
(Oct 13, RM3.31)
Maintain outperform at 3.23 with fair value of RM3.50: The management estimates that for KFCH's Indian operations to break even, it would need about 30 to 35 outlets, which we believe will be achieved by mid- to end-2013. KFCH has 10 outlets in India, which is expected to grow to 15 to 17 by end-FY11, in line with our estimates. KFCH is targeting to have 25 stores in India by end-2012. Despite the gloomy global economic outlook, we understand that KFCH is not planning to slow down its expansion plans in India.

KFCH's focus for Malaysia is to open more drive-thru outlets. Currently, out of the 528 existing outlets, KFCH has 45 drive-thrus. Year-to-date KFCH has opened 13 outlets, of which six are drive-thrus. For FY11, KFCH aims to open 12 drive-thrus out of its 25 to 28 overall targeted store openings. It plans to open more outlets on the east coast of Peninsular Malaysia and in east Malaysia.

For FY12 onwards, we understand KFCH's plans to open 12 to 15 outlets per year, lower than our current forecast of 25. We have adjusted downwards our new store assumptions to 15 per year for FY12/FY13.

Despite the slowdown in the global economy, we understand that KFCH expects its top line outlook to remain resilient for FY12. Although the management does expect a slowdown in revenues, it has strategies in place to mitigate this through the introduction of value propositions for customers such as its RM4.50 meal.

In the last economic downturn of 2008/09, there was a noticeable slowdown in revenue growth in FY09, which grew by 5.4% year-on-year, a significant slowdown given that FY08 top line grew by 26% y-o-y. The drop in revenue in FY09 was a result of a slowdown in consumer spending growth, which slowed to 0.7% y-o-y (from +8.7% y-o-y in FY08).

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.

Our FY12/FY13 earnings forecasts have been revised downwards by between 0.8% and 2.2% after imputing a lower number of new outlet openings of 15 per year in Malaysia (from 25 previously).

We expect KFCH's top line and earnings outlook to remain stable despite the cloudy economic outlook, as it is operating in a resilient segment of the food and beverage sector. While there is still downside risk to its revenues if the economy falls to worse than expected levels, the management expects a single-digit revenue decline at most.

Margins are likely to remain stable, or potentially higher, in light of declining raw material prices. As such, we reiterate our 'outperform' call on the stock, with an unchanged fair value of RM3.50 based on 14.5 times FY12 earnings per share. ' RHB Research, Oct 13


This article appeared in The Edge Financial Daily, Ocotber 14, 2011.

KFCH edges up in early trade

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

Research House: RHB

Price Call: BUY

Target Price: 3.50

KUALA LUMPUR: Shares of KFC HOLDINGS (M) BHD [] rose in early trade on Thursday, Oct 13 after RHB Research Institute said the company's earnings outlook was not dampened by gloomy economic conditions.

At 9.30am, KFCH was up nine sen to RM3.32 with 254,800 shares traded.

RHB Research in a note Oct 13 said that despite the slowdown in the global economy, KFCH expected its topline growth to remain resilient for FY12.

Although management does expect a slowdown in revenues, it has strategies in place to mitigate the potential slowdown through introduction of value propositions for customers such as its RM4.50 meal, said the research house.

RHB Research said that despite offering various value meals and other promotions, it expects KFCH's EBIT margins to remain stable in FY12-13 at about 8.2-8.5% p.a. (8.5-8.8% p.a. in FY10-11).

'We believe this is achievable given that prices of KFCH's key raw materials, corn and soy, are expected to decline along with other commodities in view of a global economic slowdown.

'We expect KFCH's topline and earnings outlook to remain stable despite the cloudy economic outlook, as it is operating in a resilient segment of the F&B sector. We reiterate our Outperform call on the stock, with an unchanged fair value of RM3.50 based on 14.5x FY12 EPS,' it said.

KFCH: More time for India

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

Research House: MAYBANK

Price Call: HOLD

Target Price: 3.37

KFC Holdings (M) Bhd
(Oct 6, RM3.19)
Maintain hold at RM3.20 with a revised target price of RM3.37 (from RM3.97): Slower economic growth is likely to have some dampening effect on consumption demand. Therefore, we have lowered our same-store-sales growth assumption by 0.5 percentage point for 2012'' to 1.3% and 1.5% for 2013 and trimmed our profit forecasts for 2012 and 2013 by 5% each year. Our discounted cash flow-based target price is cut to RM3.37 from RM3.97 on lower earnings and a higher cost of equity of 8.6% from 7.9% previously on account of higher economic risks. Valuations are still not appealing, with KFCH trading at a prospective 2012 price-earnings ratio (PER) of 14.2 times and dividend yields of just 2.1%.

The group has closed 10 non-performing Rasamas outlets year-to-date, taking the number of outlets down to 29 from 39 as at end-2010. Rasamas' contribution to the group's total revenue has dropped from 1.2% in 2008 to just 1% in 2010. The 534 domestic KFC outlets have continued to perform.The average ticket has surpassed RM20 to RM21.50 with the introduction of new products, promotions, and improvements at its drive-through windows.

While the management is targeting 28 new outlets in India in 2011, we have factored in 23. The management's intention is to have 15 restaurants by end-2011 (nine presently) and 30 restaurants by end-2012. Breakeven is expected at around 25 outlets, and is likely to happen only in 2013. As at end-2010, India contributed 3.3% of total revenue in the restaurant segment, compared with 79% of the operations in Malaysia.

KFCH's price-to-book valuation at the lowest point during the global financial crisis in 2008 was 1.6 times, against 2.3 times for 2011 presently. Based on our estimated book value per share of RM1.56 for 2012, the estimated trough in share price would be about RM2.50. KFCH traded at a trough PER of about nine times, against 14.8 times presently. Our base case has factored in slower economic growth but not a recession. We do not expect trough valuations to be revisited. ' Maybank IB Research, Oct 6


This article appeared in The Edge Financial Daily, October 7, 2011.

KFCH: India expansion on track

Stock Name: KFC
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.

KFC - OSK maintains KFC's earnings forecast

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: OSK

OSK Research Sdn Bhd has maintained its forecast on KFC Holdings (Malaysia) Bhd's earnings at RM164.6 million and RM181.5 million for the financial year 2011 and 2012, respectively.

This is because KFC's first quarter financial year 2011 revenue and net profit of RM644.2 million and RM36.1 million respectively, was within its estimates, OSK said in a research note today.

The positive performance was mainly due to better sales from KFC restaurants and integrated poultry segment, which grew 9.4 per cent to RM489.5 million and 4.8 per cent to RM130.9 million, respectively.

"We see the earnings before income and tax (EBIT) margin hovering at the current level, as the recent stabilisation in raw material prices and stronger ringgit against the US dollar, compensates for the high start-up costs in India," OSK Research said.

KFC's first quarter financial year 2011 EBIT margin stood at 8.4 per cent versus 8.5 per cent in the preceding year.

OSK Research also said KFC's earnings for financial year 2011 and 2012 was maintained, due to its plans for more new outlets to beef up sales.

KFC has targeted to achieve 543 outlets in Malaysia, 81 in Singapore and 17 in India by year-end. For 2012, it plans to open 25 outlets in Malaysia, three in Singapore and 13 in India, it said.

KFC has 519 outlets in Malaysia, 79 in Singapore and eight in India at present. -- Bernama

KFC - KFCH slowing store openings in Malaysia to 25 per year

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: RHB

KFC Holdings (M) Bhd
(April 27, RM3.71)
Downgrade to underperform at RM3.70 with revised fair value of RM3.74 (from RM3.85): After our recent meeting with management, we understand that KFCH's new store opening target for Malaysia has been trimmed to 25 to 28 stores per year for FY11/13 (from 35 to 40 previously).

KFCH has 521 stores (end-FY10: 515) in Malaysia and has been aggressively expanding, opening 33 to 40 stores per year for the last five years.

The reason for the slowdown of store openings is partly due to the lack of supply of trained full-time employees. Note that approximately 70% of KFCH's employees are part-time, which includes secondary school students during school holidays.

Another reason for the slowing down of new store openings is the fact that due to the large number of stores already in Malaysia, we understand that KFCH is finding it slightly more challenging to obtain suitable locations for new stores.

Despite the slowdown in store openings in Malaysia, KFCH's expansion in India continues to be on track.

The company is currently running eight outlets in India, out of a total 110 KFCs in the country run by other Yum! franchisees. In terms of new outlets, KFCH's target remains the same as previously, with an expected nine or 10 store openings per year for FY11/12, in line with our original expectations.

We understand that KFCH is currently focusing on shopping malls for new outlets, and this will continue to be its focus in the near to medium term, while it will only look to opening stores in the rural or suburban areas in the long term.

Given the concerns over the rising cost of commodities, we were assured by management that KFCH's raw materials (corn and soy), which account for 10% to 12% of cost of sales, would not cause any significant margin erosion as the rise in costs could be passed down to consumers.

KFCH raised its selling prices across the board in November 2010 by 4% to 5% (based on our own estimates) to ease the pressure on margins.

The risks include: (i) escalation of bird/swine flu; (ii) a rise in corn and soybean prices which would eat into margins; and (iii) deteriorating consumer spending power resulting in lower same-store sales (SSS) growth.

Our FY11/13 earnings were revised downwards by 2.4% to 6.2% after taking into account: (i) the lower number of new outlets to be opened in Malaysia; (ii) higher FY13 growth assumption of 15% (from 10% previously) for its integrated poultry division; (iii) lower FY11/13 earnings before interest and taxes (Ebit) margins of 0.8% for its integrated poultry division; and (iv) lower capital expenditure of RM120 million per year (from RM200 million previously) for FY11/13 to incorporate the lower number of new stores to be opened.

Our fair value is reduced slightly to RM3.74 (from RM3.85 previously) based on unchanged 17 times FY11 earnings. Given the limited upside to our fair value as compared to the FBM KLCI, we are downgrading our call on the stock to an 'underperform'. ' RHB Research, April 27


This article appeared in The Edge Financial Daily, April 28, 2011.

KFC - Robust industry growth prospects seen for KFCH

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: AMMB

KFC Holdings (M) Bhd
(March 3, RM3.66)
Maintain buy at RM3.65 with fair value of RM4.15: According to Bernama, fast-food chain McDonald's Malaysia (McD) is forecasting a robust 20% year-on-year (y-o-y) growth in sales to RM1.3 billion for 2011, from just RM1 billion in the pre-vous year.

McD is estimated to command some 20% to 30% market share of the local fast and casual food arena; thus we see the optimistic view as a good gauge of industry prospects. This underscores our positive stance on closest competitor KFC Holdings (KFCH) for the strong food consumption trend in Malaysia, with same store sales (SSS) growth in FY11F expected to remain steady at 8% to 9%. Market share of McD and KFCH combined is believed to be 55% to 60%.

McD recently launched a new product called the 'Family Breakfast Box' as part of the extension to existing breakfast offerings. As the name suggests, the product is designed for two to four persons, with two options priced at either RM19.90 per set or RM24.90 per set.

Admittedly, with savings of up to RM11.15 compared with a la carte purchases, the Family Breakfast Box does look attractive. However, we see an insignificant impact on KFCH, as breakfast sales constitute a mere 2% to 3% to KFCH's total revenue. In contrast, breakfast contributes an estimated 25% to 30% to McD's turnover.

Moving forward, integrated poultry margins, which have been relatively flattish so far, could see some slight pressure due to rising raw material costs such as corn and potatoes. But this should be partially offset by the strong ringgit against the US dollar. The group last raised average selling prices by 2% to 3% back in 2007 during the commodities bull run.

We maintain 'buy' with an unchanged fair value of RM4.15 per share, based on a fair price-earnings ratio of 20 times FY11 earnings. We like KFCH for its high-cash generating food business model on the back of stable restaurant sales in Malaysia and exciting earnings growth potential in India. ' AmResearch, March 3


This article appeared in The Edge Financial Daily, March 4, 2011.

KFC - OSK Research: KFCH revenue, core net profit within expectations

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: OSK

KUALA LUMPUR: OSK Research said KFC Holdings' FY10 revenue and core net profit of RM2522.4 million (up 9.8% on-year) and RM150.2 million (+15.2% on-year) respectively were within its and consensus estimates.

It said on Tuesday, Feb 22 that buoyed by higher average same-store-sales growth, new openings and the introduction of new products, its restaurant segment posted 9.6% growth to RM1496.9 million while the integrated poultry division saw a 10.2% jump in revenue on-year to RM533.4 million.

OSK Research said the FY10 core EBIT margin was 0.2 percentage point better on-year, mainly bolstered by the local KFC operation and integrated poultry division.

'Our FY11 and FY12 net profit forecast is raised by 1.3% - 1.8% to RM164.6 million and RM181.5 million respectively after factoring in a stronger US$/ringgit exchange rate and higher raw material cost. Maintain NEUTRAL,' it said.

KFC - Strong consumer spending favours KFCH

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: BIMB

KFC Holdings (M) Bhd
(Feb 22, RM3.80)
Maintain neutral at RM3.85 with target price RM4.30: KFCH revenue and net profit for the quarter rose by 9.6% and 37.6% year-on-year (y-o-y) to RM683.9 million and RM38.9 respectively, million thanks to:

(i)'' ''aggressive expansion of its restaurants;
(ii)'' ''strong marketing of products; and
(iii)'' ''improvement in sales throughout Malaysia and overseas.

On a sequential basis, KFCH's revenue and net profit increased by 8.3% and 24.2% quarter-on-quarter (q-o-q) respectively, thanks to an improvement in consumer spending driven by encouraging economic growth. GDP in 4Q10 grew by 4.8%.

Underpinned by strong consumer spending with aggressive restaurant expansion, KFCH's full-year revenue and net profit jumped by a sterling 10% and 20%. There is no adjustment on earnings estimates as the results were in line with our expectations.

We are bullish on KFCH's future outlook as consumer sentiment remains stable, supported by strong economic performance as Malaysia's 2011 GDP is poised to linger between 5% to 6% this year with our in-house projection of 5.7%

Moving forward, we foresee that KFCH's 1QFY11 performance will continue to be favourable, driven by strong consumer spending thanks to tame inflation and higher disposable income.

KFCH's FY11 net profit is forecast to grow by 15%, mainly driven by:

(i)'' ''strong expansion of KFC restaurants;
(ii)'' ''better economic outlook; and
(iii)'' ''the seasonal factor such as school holidays and Chinese New Year, Hari Raya, Deepavali and Christmas which are expected to boost consumer spending.

We maintain our 'neutral' call on KFCH with an unchanged target price of RM4.30. The target price is derived by pegging FY11 earnings per share of 21.7 sen to target PER of 20 times. Total return is at 13.7%, including 2% prospective dividend yield. ' BIMB Securities Research, Feb 22


This article appeared in The Edge Financial Daily, February 23, 2011.

KFC - Consumer sector still positive for 2011

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: BIMB

Consumer sector
Recommend overweight: Consumer stocks under our coverage, Aeon, Padini, Parkson and KFC produced performances in line with our expectations, with earnings coming in within our full-year estimates. The good performances were mainly driven by: 1) a convincing economic recovery; 2) improving consumer sentiment; 3) seasonal spike in festival spending (Chinese New Year, Hari Raya, school holidays and other public holidays); 4) capacity-expansion plans; 5) operational efficiencies (especially for Aeon and Parkson); and 6) favourable exchange rate movements for Chinese renminbi and Vietnamese dong against the ringgit in the case of Parkson.

Aeon opened two new stores last year. The expansion throughout the year has pushed up AEON's 9MFY10 revenue and net profit by 5% and 56% year-on-year. In 2011, AEON will invest RM200 million to open its 28th store in Rawang, which is expected to be completed within a year. Furthermore, another one or two new stores will be opened in 2011, in the northern part of Peninsular Malaysia, either in Penang, Sungai Petani or Ipoh.

Padini has been aggressively growing with seven new stores in 2010 to bring its total outlets to 233 (including consignment stores) in Malaysia and 97 franchise and dealers' stores overseas. The company is expected to continuously spread its wings, with annual capex of RM20 million. In addition to that, Padini is also aiming to expand its brands outlets business (selling other brands) and is currently working on the expansion efforts to open two more outlets in Kota Baru and Setapak.

As for Parkson, the group has been aggressively leading its retail peers in its expansion drives with eight new stores in Malaysia, China and Vietnam. For 2011, it aims to open five stores in China and one or two stores in Malaysia and Vietnam, which would bring a total of at least 95 stores by year-end. For that, some RM200 million is expected to be spent this year.

We are positive about the retail players' expansion drives as this strategy is the key to spur strong growth in revenue and earnings. This is also in tandem with improving consumer sentiment on the back of positive economic growth domestically and in Asia.

KFC plans to continuously expand its restaurants in 2011. It has said it will open 30 new KFC restaurants, 25 Ayamas outlets and two to three RasaMas restaurants locally. KFC also plans to increase the number of its restaurants overseas. There will be one or two new restaurants opened in Brunei and Singapore. Meanwhile, in India, KFC expects to open more restaurants to increase its total number of outlets to 17 by end-2011.

In tandem with the strong economic growth (GDP growth for 3QFY10 of 5.3% and 2011F of 5.7%), consumer sentiment in Malaysia has been showing an improvement, reaching a two-year high at 115.8 points in September. We expect rising consumer confidence to continue in tandem with the positive economic growth, coupled with additional initiatives planned by the government to raise disposable income and spur domestic spending in Budget 2011 .

Therefore, we expect double-digit earnings growth for the companies under our coverage in FY11.

The prices of consumer goods have been continually on the uptrend driven by higher commodity prices globally. The strong surge in input prices over a short period will eventually impact consumer spending as inflation creeps up. For instance, consumer price index rose from 111.7 in January 2009 to 115 in November 2010.

Additionally, the government's intention to eventually remove most subsidies under the Economic Transformation Programme will hit consumer confidence and hence, spending, should disposable income not grow concurrently.

We are 'overweight' on the consumer sector with three 'buy' calls out of four stocks under our coverage, to be supported by the expected double-digit earnings growth in FY2011 and FY2012. We recommend a 'buy' call on Aeon (TP: RM7.30), and Parkson (TP: RM7.57), 'outperform' call on Padini (TP: RM1.22), and maintain our 'neutral' call on KFC (TP: RM3.97). ' BIMB Securities Research, Jan 24


This article appeared in The Edge Financial Daily, January 25, 2011.