Privatisation, M&A of KFC may be imminent – Analysts

KUCHING: Investors could witness a possible consolidation of KFC Holdings Malaysia Bhd (KFC Malaysia) in the near-term, judging from latest announcements made on Bursa Malaysia.

In respective notes to the Main Market board, the well-known fast food operator alongside its parent, QSR Brands Bhd (QSR) and Kulim Malaysia Bhd (Kulim), declared suspension of shares trading yesterday – each citing a pending “material announcement on a potential corporate exercise” as reason for the announcements.

To note, Kulim owns 55 per cent of QSR.

“The story of a potential privatisation or M&A (merger and acquisition) involving KFC Malaysia has been going on for the longest time,” observed TA Securities Holdings Bhd’s research analyst Farhana Hamzah in response to an e-mail yesterday.

“In recent weeks, however, rumours have started flying again, with Kulim dumping QSR’s shares and into KFC. The amount of disposal was quite significant, as reported in Bursa Malaysia,” she added.

The re-emergence of the news followed sharp appreciations noted in all three groups’ share prices – fueling the strong speculation that a substantially larger corporate development involving KFC Malaysia could be ‘in the cooking pot’, opined Farhana.

Prior to suspension requests, shares of KFC, QSR and Kulim shot up 28 sen, 29 sen and 16 sen, respectively; to reach RM4.25, RM5.76 and RM13.54, respectively.

“The offer price might possibly be at current price, or probably one-week weighted average – we could not confirm, as the (KFC Malaysia) management are tight-lipped about it. We will just have to wait for the announcement,” she disclosed.

However, market observers had generally hinted one potential buyer for the corporate exercise, namely the American private equity firm KKR: Kohlberg Kravis Roberts & Co (KKR).

“There is a possibility that Kulim’s parent Johor Corporation Bhd (JohorCorp) – or even Kulim itself – might be requiring certain capital inflows. Thus, KFC Malaysia, being the ‘cashcow’, is poised to be the easiest exit,” an analyst from a financial group-backed research house added to the statement.

“Further, since QSR own less than 50 per cent of KFC Malaysia, we believe JohorCorp is looking for a buyer of QSR – since that would be more logical – hence, exiting the food and beverage industry altogether. We also believe that it will only trigger one general offer, buying over QSR would also mean taking over KFC Malaysia.”

To note, QSR’s shares had been steadily rising up by 6.2 per cent in the past month. On the other hand, plantation-oriented Kulim seemed to be benefitting from surging crude palm oil prices, having its shares to accrete by 42.9 per cent over the same period

Still, recent response from KFC Malaysia’s managing director Jamaludin Md Ali had dismissed the notion of a possible buyout by QSR. Additionally, the group also announced on Bursa Malaysia on Monday its non-involvement with regards to the news of a KFC merger offer believed to be from parties linked to former Renong Bhd’s executive chairman Tan Sri Halim Saad.

To note, Renong is the parent holdings of UEM Group Bhd – a construction conglomerate that was involved in the financial crisis from crippling alonhside toll road operator PLUS Expressway Bhd.

“Halim Saad is seen as the highly potential buyer,” a market observer pointed out. “I am not surprised by Tan Sri Halim’s move since many know of his unsuccessful bid for PLUS.

“Still, it all depends on what will the announcements be coming from KFC and the rest of the group – despite all the signs.”

Currently, KFC Malaysia operates over 540 KFC restaurants in Malaysia, Singapore and Brunei, as well as over 40 RasaMas restaurants in Malaysia and Brunei. For the first six months of this year, it achieved revenue of over RM1.206 billion against RM1.088 billion in corresponding period last year. In the same half-year period, the group registered a profit before tax of RM102.2 million against previous year’s same first-half of RM85.8 million.