KUCHING: Recent financial results of KFC Holdings Malaysia Bhd (KFC) came within consensus estimates. Nevertheless, most analysts concurred that along such positive growth, the outlook for the fast food operator remained cautiously optimistic.
GROWTH CATALYST: KFC’s managing director Jamaludin Mohd Ali (left) is seen in this file photo with Conrad de Lima, senior general manager of KFC operations jointly unveiling the new offering from KFC. RHB Research’s estimate of six to seven per cent same-store sales’ growth for KFC’s restaurant segment for last year has been in line with its forecasts.
The group reported revenue of some RM2.522 billion for the financial year ended December 31 last year, representing a growth of 9.8 per cent over RM2.297 billion in revenue for 2009.
Moreover, pre-tax profit of RM221.8 million was recorded as compared with prior year’s RM190 million, translating into a 16.7 per cent increase in year-on-year profitability.
Additionally, KFC announced a second interim dividend of 5.5 sen less 25 per cent tax, translating to a total net dividend for last year of nine sen, or a payout of 46 per cent and a net yield of 2.3 per cent.
“KFC has done well, with its share price has risen 92.5 per cent over the last 52 weeks. But as it continues to consistently deliver sustained top-line and bottom-line growth, we see a lack of near-term catalysts,” said Wong Chew Hann and Kang Chun Ee, research analysts from Maybank Investment Bank Bhd (Maybank IB), which downgraded KFC’s shares to a ‘hold’ call.
Amidst all encouraging numbers, both analysts opined that the only ‘blot’ on KFC’s record book was the 30.6 per cent decline in pretax profit to RM12.5 million from the group’s overseas restaurants division.
“This is probably due to start-up losses and the lack of scale economies at its India operations,” they added.
Conversely, TA Securities Holdings Bhd’s (TA Securities) consumer and industry analyst Farhana Hamzah believed that notwithstanding these setbacks, she was positive on KFC’s position in India, stating “we believe growth potential in India to be enormous”.
Farhana commented, “We expect to see topline contribution from India this year. As mentioned previously, we expect a conservative revenue contribution per store of US$1 million per annum each.”
Such outlook would also coincide with TA Securities’ positve take on the food and beverage sector this year, which according to Farhana, would be underpinned by improved consumer sentiment and increasing disposable income “thanks to the projected six per cent-GDP (gross domestic product) growth for this year”. TA Securities maintained a ‘buy’ call on KFC, with a retained target price of RM4.25.
Overall, KFC Malaysia’s restaurants segment registered a 9.5 per cent revenue growth to RM1.888 billion against 2009’s RM1.723 billion, while its integrated poultry segment recorded a 10.2 per cent revenue growth to RM533.4 million against the previous RM484.1 million.
Hoe Lee Leng, an analysts from RHB Research Institute Sdn Bhd (RHB Research) believed that despite the small contribution, these two segments were the reason KFC saw the incremental double-digit growth in its bottomline.
“We estimate that same store-sales’ growth for KFC’s restaurant segment was at six to seven per cent in 2010, in line with our forecasts,” the analyst added.
Moving forward, however, Hoe cautioned that the global ongoing rise of food costs – corn specifically for KFCH, as it remained the main feedmeal for its integrated poultry division – could cause KFC’s margins to be squeezed in the short run.
“Nonetheless, we remain positive as we believe that KFC could pass on its rising costs to customers through price increases of its products. In the longer run, we believe that KFC’s growth fundamentals remain intact in terms of targeted store openings for 2011 and same-store sales growth,” added Hoe.
RHB Research maintained its fair value at RM3.85, retaining its ‘market perform’ call on KFC.