KFC's full-year earnings were below consensus and our estimates. Revenue was stronger by 11% y-o-y, mainly attributed to its Malaysia and overseas operations, but EBIT margin and earnings contracted due to losses incurred in its from integrated poultry, education, ancillary and India operations. Maintain NEUTRAL, with FV of RM4.00.
Not so palatable. KFC's 1QFY12 revenue grew 11% to RM718.6m, mainly driven by stronger topline from its Malaysia (+8.6% y-o-y) and overseas operations (+13.7% y-oy). Total revenue from the restaurants was on an uptrend (+9.6%) due to: i) expansion in its network of restaurants, ii) refurbishment of existing outlets, iii) introduction of innovative new products supported by marketing promotions, and iv) launching of thematic campaigns for brand building and positioning. Meanwhile, revenue in the integrated poultry and education segments surged 21.1% and >400% respectively while ancillary revenue was lower by 7.2%. Overall, PBT declined by 9.9% due to losses in the integrated poultry and education segments, as well as KFC India operations. Q-o-q revenue and earnings were lower by 6.3% and 14.5% due to higher turnover during the school holidays in the previous quarter and also the fewer number of days in the quarter under review.
Lower margin. EBIT margin continued to dip from 8.4% to 7% due to the losses incurred by various segments. Higher operating costs and commodity prices and costlier open market chicken purchases pecked at the bottomline of the integrated poultry segment while KFC India and KFCH International College chalked up losses as they have yet to achieve critical mass in their operations and student population respectively to achieve profit. Meanwhile, the ancillary segment also reported a RM2.1m loss, mainly due to higher costs in the warehousing operations after it moved into a new facility with a larger storage capacity.
Maintain NEUTRAL.KFC plans to open 15 new KFC restaurants in Malaysia, most of which it plans to equip with Drive-thru facilities. The group plans to open 3 new KFC outlets in Singapore and 3 in Brunei this year. In India, it will also aggressively expand its branch network by adding another 29 restaurants. We are slashing our FY12 and FY13 earnings forecasts by 11.7% and 10.2% respectively given the weaker performance of the various divisions. Maintain NEUTRAL, with our FV of RM4.00 based on the takeover offer price. On 18 May 2012, KFC entered into a Business Sale Agreement and Property Sale Agreements with Triple Platform SB (TPSB), a whollyowned subsidiary of Massive Equity SB (MESB), in relation to the Proposed KFC Disposal.