Stock Name: QSR
Company Name: QSR BRANDS BHD
Research House: CIMB

QSR Brands Bhd
(Aug 25, RM4.37)
Maintain outperform at RM4.43 with target price RM5.60: As previewed, QSR's interims were in line with our forecast but below market expectations. 1H2010 net profit came in at 48% of our full-year forecast and 41% of consensus estimates. 2H is typically stronger due to festivities and longer school holidays. Dividend per share (DPS) surprised on the upside, coming in at six sen against four sen for 2Q2009. We raise our FY2010-12 DPS forecasts from 13 sen to 15 sen but leave our earnings forecasts largely untouched. Our target price remains at RM5.60, pegged to 16 times forward PER, which factors in a 10% discount to the average valuation of bigger F&B producers. QSR stays an outperform and our top F&B pick. Potential share price catalysts are (i) a sustainable improvement in same-store sales growth, and (ii) success in new markets, namely India and Cambodia. Any share price weakness resulting from earnings downgrades by the market would be a buying opportunity.

In 2Q, net profit rose 18% year-on-year, reflecting new outlets, higher same-store sales growth and record average ticket prices. In Malaysia, QSR added six outlets while 50.3%-owned KFC Holdings opened 11. Furthermore, the successful introduction of innovative products by Pizza Hut (Fish King Pizza) and KFC (Black Pepper Crunch) helped to push the average same-store sales growth to 8% for Pizza Hut and 4% for KFC. During the quarter, the group's average ticket prices hit all-time highs of RM40 for Pizza Hut and RM20 for KFC.

The group's FY2010 capex requirements amount to RM40 million for Pizza Hut (including RM10 million for image enhancement) and RM110 million for KFC (including RM40m for image enhancement). It is on track to open 16 to 18 new Pizza Hut outlets and 30 KFC outlets in Malaysia by year-end. But India is where the excitement is. Currently, KFCH operates one outlet each in Mumbai and Pune. Eight more outlets, all located in shopping malls, are expected to start operations this year. Monthly sales for the existing two outlets have been encouraging, hitting as high as RM450,000 per outlet. This may help increase KFCH's chances of taking over four outlets which are now under Yum!. Yum!'s outlets are already profitable. ' CIMB Research, Aug 25


This article appeared in The Edge Financial Daily, August 26 2010.