Top Story : KFC – Upbeat on growth prospects Outperform (up from MP)
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♦ Management plans to open about 40 new outlets per year in FY10-12, which will be focused on small towns and East Malaysia. As this is a more aggressive network expansion target than earlier guided (of 20-30 outlets p.a.), we have raised our FY10-12 new outlet assumptions in Malaysia to 40 p.a. from 20-30
outlets previously.
♦ Management seems more upbeat on prospects now given that SSS for YTD Feb FY10 has been growing at approximately 10%, which is significantly above our forecasts of 4% p.a.. As such, we are raising ourSSS projections to 7% p.a. for FY10-12.
♦ We understand that one outlet is now scheduled to be opened in Pune on 31 Mar and another in Mumbai in the first week of April. We believe the long-term potential for the India market continues to be exciting, as we expect growth to be strongly backed by the approximately 19.1m combined population in both ities,coupled with potential SSS growth of over 20% p.a. (which is based on the SSS growth achieved by the existing KFC restaurants operated by other franchisees in India).
♦ All in, our FY10-12 forecasts are raised by 9-15.8%. Given the marked improvement in earnings prospects as the company becomes more aggressive in its growth plans, as well as better growth trajectory from the recovering economy, our fair value has been lifted to RM9.63 (based on unchanged 12.5x FY10 PE, 14 discount to consumer sector PE of 14.5x) from RM8.84 previously. Upgrade to Outperform.
RHB Equity 360° (KFC, SP Setia; Technical: WTK) - 30/03/2010
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