KFC's 9MFY12  results  were  below  consensus  but  well  within  our  expectations. Revenue  grew  by  9.3%  y-o-y,  supported  by  decent  topline  growth  for  its  KFC restaurant business, integrated poultry and education divisions. However, losses from  its  integrated  poultry  segment,  education  and  KFC  India  operations weakened  the group's earnings.  As  it  will  soon  be  privatised  by  Massive  Equity SB, we are discontinuing our coverage on KFC.

In line. The group's revenue improved by 9.3% y-o-y, backed by healthy topline turnover numbers  in  most  of  its  divisions  namely  KFC  restaurants  (+8.9%),  integrated  poultry segment  (+12.4%),  and  education  (+134.5%).  Its  ancillary  segment's  revenue moderated by 3.7% y-o-y. However, net profit shrank by 9.6% y-o-y due to losses in its integrated poultry segment, education and KFC India operations.

Weaker margins. The EBIT margin nudged down by 1% to 6.7% y-o-y due to: i) rising cost  pressure  from  food,  utility,  labour  and  logistics,  and  ii)  higher  raw  material  prices. We  expect  margins  to  remain  flat  or  lower  in  view  of  high  commodity  prices  and  rising overhead costs.

Ceasing  coverage.  The  shareholders  gave  the  go-ahead  to  KFC's  proposed privatisation  in  the  EGM  held  on  5  Nov  2012.  The  acquisition  is  expected  to  be completed  by  year-end  and  the  board  of  directors  has  no  intention  to  maintain  the group's listed status. Upon completion, KFC will undertake to return the cash proceeds from the disposal to shareholders at RM4/share and warrant holders at RM1/share, via a capital repayment exercise and a warrant scheme respectively.

Source: OSK