KFC Holdings (M) - Privatisation to be completed by year-end? BUY

- Johor Corp’s (JCorp) president and chief executive Kamaruzzaman Abu Kassim said the proposed privatisation of KFC Holdings (KFC) and QSR Brands Bhd (QSR) is on track and that there are no objections from Yum! Brands, according to local dailies.  

- It is understood JCorp has been actively briefing the owner of the KFC franchise, Yum! Brands, in arriving at the current terms of understanding, but has yet to make a formal application.  

- Nevertheless, we see this development as a positive sign. As it is, JCorp’s president is confident of concluding the privatisation exercise by the year-end after a longer-than- expected delay.

- On a separate matter, JCorp is looking at raising RM3bil through the issuance of “sukuk wakalah” Islamic bonds with a guarantee from the federal government. 

- The proceeds will be used to settle JCorp’s debt repayments due in July 2012. 

- KFC recently launched a new marketing campaign based on a thematic extension of its “So Good’ tagline at a RM4mil investment cost. The group expects the A&P drive to boost sales by 10%-15% in 2QFY12.

- KFC has allocated a RM63mil capex for KFC restaurant outlet expansion this year. The group will be adding 15 new outlets in Malaysia and 9 in India, for which we have taken into account into our earnings forecast model.    

- Maintain BUY with an unchanged fair value of RM4.15/share, based on a fair PE of 18x FY13F earnings. We like the group’s high cash generative food business model on the back of an established global brand equity, with stable restaurant sales in Malaysia and exciting growth prospects in India.   

Source: AmeSecurities