Journey to Wealth
KFC Holdings - Marred by higher operating expenses Hold
- KFC Holdings (KFC) reported a net profit of RM33mil for 1QFY12, accounting for 20% of our full year forecast and 19% of street estimate. We deem the seasonally soft 1Q results to be broadly in line with expectations and the historical trend over the years.
- On a sequential basis, 1Q net profit declined by 15% mainly due to lower KFC restaurant sales which slipped 7% given the absence of school holidays this quarter, as well as weaker performances at its integrated poultry and ancillary divisions which recorded EBIT losses of RM5mil each.
- Compared to the corresponding period in the previous year, net profit was down 10% despite higher turnover which rose 12%. Benefits from improvement in restaurant EBIT (YoY: 11%) was more than offset by a 1.4ppts EBIT margin compression due to higher operating expenses. We note that blended EBIT margin of 7% is an all time low.
- Performance of integrated poultry was down due to higher commodity feed costs as well as unfavourable open-market chicken costs procured back in 4QFY11. We understand the Newcastle broiler disease had resulted in the upswing in prices back then.
- Meanwhile, ancillary division had to contend with higher costs incurred in relocation of its warehousing facility. Also, KFC's 2 campuses which formed its education arm remained in the red due to higher A&P expenses incurred to promote student intake.
- For FY12F, management is targeting a total of 34 new KFC outlet openings (Malaysia: 15 with a majority being drive-thrus, Singapore: 3, Brunei: 3 and India: 13).
- In light of recent corporate development in regards to the privatisation of KFC, we now have a HOLD rating with a fair value of RM4.00/share - in line to the offer price as per the agreements recently entered by the group with Triple Platform Sdn Bhd (wholly owned subsidiary of Massive Equity Sdn Bhd) for the disposal of KFC's entire business and undertaking.
- The proposed exercise is expected to be completed by this year-end.
Source: AmeSecurities
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