KUCHING: KFC Holdings (M) Bhd (KFC) is planning to open more outlets in Malaysia and overseas in order to improve its earnings prospects.
MORE OUTLETS: KFC is opening up more outlets in Malaysia, India, Brunei and Singapore.
RHB Research Institute Sdn Bhd (RHB Research) said in its research report that KFC was planning to open 40 new outlets per year between 2010 and 2012 in East Malaysia and other small towns.
Among these, the company was planning to open about four to five drive-through outlets given the rising ‘on-the-go’ lifestyle habits of consumers especially in urban areas.
The research house opined that the strategy was good for maintaining its competitiveness against its closest competitor McDonald’s that had 37 drive-through outlets out of 194 outlets in the country.
However, the management highlighted that the capital expenditure for drive-through outlets would be high compared to normal outlets. It would cost RM2.5 million compared to RM900,000 of a conventional outlet. On the other hand, it was said that KFC was opening two outlets in India. One will be opened in Pune on March 31st this year and the other will be in Mumbai a day earlier.
The management of KFC indicated that it planned to open circa 10-12 outlets per annum in India in new shopping complexes and urban areas.
It was expected that the average product prices in India would be about 10 per cent higher than in Malaysia based on the Ringgit. However, this was still competitive since it is similar to the product prices by its closest competitor, McDonald’s.
Despite having the advantage of cheaper labour in India compared to Malaysia, rental rates in India were higher, accounting for circa 15 per cent of total sales that was higher than the six per cent in Malaysia.
On a net basis, price before tax would be lower at four to five per cent compared with Malaysia’s eight per cent.
Going forward, management hoped to be able to reach critical mass and therefore break-even in two to three years.
The research house was of the opinion that the long-term potential for the Indian market would be exciting on the back of 19.1 million people in both cities, coupled with potential for same store sales growth of more than 20 per cent per annum.
Maharashtra, the state where both cities are located, has the second largest population in India with 42 per cent of the population living in urban areas. It was also reported that, the halal status would help KFC to secure a bigger market share since India has the second largest Muslim population in the world with 13 per cent of Indian population being Muslims.
KFC makes it a point to ensure that all its raw material suppliers in India are certified halal.
Besides that, KFC added new outlets at the Brunei International Airport in 2009, thus bringing the number of outlets to nine. In the current year, KFC plans to open three new outlets, including one drive-through.
Meanwhile, in Singapore, KFC was planning to open three outlets per annum in order to catch up with 100 outlets of McDonald’s. KFC had 75 outlets as at the end of 2009.
On the other hand, KFC was planning to open 10 new Rasamas outlets in 2010 and carry out a rebranding exercise. As a result, profit was expected in 2010 from a loss made in the previous year. At the moment KFC owns 40 Rasamas outlets.
KFC was also planning to open 15 new Kedai Ayamas. Although the business was in the red in 2009, the management managed to turn this around with the profit of RM0.2 million of last year. Currently KFC owns 40 outlets after adding six new ones last year.
It was also reported that KFC was diversifying its Kedai Ayamas business by including non-chicken products and roasted chicken. KFC would sell its products to restaurants operators in bulk by using the same trucks used to deliver raw materials.
Furthermore, in 2010, KFC’s margins would improve from the regionalisation exercise of its warehouses where a warehouse would be centralised for each region in order to reduce transportation costs.
As a result, earnings forecasts for 2010-2012 were revised upward by nine to 15.8 per cent after raising the new outlets assumption, same store sales growth, capital expenditure and the assumption of RM5 million earning before interest and tax loss for 2010-2012 for the Indian operations.
As a result, KFC’s fair value was pegged at RM9.63.