• We maintain our BUY recommendation on Bison Consolidated (Bison) and a higher fair value of RM2.70/share (from RM2.24/share previously). We roll over our valuations to FY18F, pegged to an unchanged PE of 27x, which is in line with 7-Eleven Malaysia (7E Malaysia).

• Earnings were above our and consensus estimates at 61% and 53% respectively. We continue to like Bison for its growth, driven by an aggressive expansion plan, and supported by an excellent execution track record. Heading into FY19, there could be a potential margin enhancement underpinned by its own in-house food processing centre.

• Bison reported a 2QFY17 core net profit of RM6.2mil (QoQ: -2.5%) brought cumulative earnings to RM12.6mil (YoY: 28.6%). The declared dividend of 2.0 sen/share was above our expectations.

• Bison’s QoQ revenue growth of 4.0% was supplemented by the 4.8% higher store count or the additional 15 new stores against the preceding quarter. It brought the total store count to 325 stores as at the end of April. Cumulative top-line growth was in tandem with store addition as well. Bison remains on track for an addition of 70 new stores for the financial year.

• Gross margins for the year continued to improve to 37.0% from 36.4%. It was driven largely by its other operating income, which in effect is A&P revenue tied with the opening of its stores. Bison’s savvy utilisation of floor space and watertight supply chain enables it to command up to 60% in A&P per store relative to 7-Eleven by our estimates.

• Meanwhile, EBITDA margins contracted marginally as admin expenses growth of 30.2% YoY outgrew revenue for the quarter. This was attributed to higher employee and overhead cost. Going forward, we expect it to revert given Bison’s aggressive store expansion and the consequent realisation of greater economies of scale.

• As a result of healthier margin assumption, our earnings forecast is adjusted upwards by 10.5% and 5.4% for FY17F and FY18F respectively. Key risks to Bison include: 1) excise duty hike to cigarettes, which lowers foot traffic and related spillover spending; 2) delay in food processing centre set-up; and 3) tightening of foreign labour regulation.

Source: AmInvest Research - 15 Jun 2017