Take Over Plan, Will KFC Go Up Further?

As reported by most main media on 20^th November 2010, Tan Sri Halim Saad has made offer to takeover KFC Holdings Berhad (KFC) by purchasing QSR Brand Berhad (QSR) shares from Kulim Berhad.

Kulim Berhad is the company owns 59.58% shares in QSR and QSR in turn owns 50.3% shares in KFC. As known by public KFC is the operator of international well known brand outlets in Malaysia (a part from Singapore, Brunei, Cambodia and India) namely KFC Restaurants and Pizza Hut outlets. Apart from that KFC is also the owner and operator of Ayamas outlets.

Since the takeover involving three public listed companies, what is the effect over the share price of those companies?

From my point of view, the news of takeover which believed to be materialized will give negative effect to QSR price  but positive effect to Kulim and KFC price based on the following analysis.

QSR

A report says that, QSR price offered by Halim Saad to Kulim will be RM5.18 namely two times than book value of RM2.59 as at end June 2010. Meanwhile the market price of QSR before suspension on 19 November 2010 was RM5.76.

Since the market price is higher that offer price, it will make the price of QSR unattractive and investors will sell QSR shares instead of buying, therefore QSR price will down once  it is resume trading in the market next week

KULIM

Five years ago, Kulim bought 43% QSR shares for RM3.20 per share. If Kulim agree with Halim Saad’s offer i.e RM5.18 per share, Kulim will gain RM1.92 per share or 60% capital gain for five years investment. As an effect Kulim will receive a lot of cash from this take over and therefore the price may go up.

KFC

Readers can refer to my previous article in this blog. KFC price was RM3.63 when I made the analysis and recommend to buy based on fundamental. Few weeks later the price was above RM4.00 i.e short term target. Since KFC has very good fundamental strengths as written in my previous article, I believe that KFC price can go higher in mid and long term even before news of takeover published.

No matter either the takeover will be materialized or not, KFC is still a good investment. Takeover plan by former influential billionaire who want to make a comeback will support and make KFC shares more attractive as well as  speed up the upward movement. Nevertheless, I do not deny should the takeover fail, the KFC price will move to the south but only in short term.

The above analysis is my point of view only.

- Sabri Jalil

 

Will Price Of KFC Go Up?

After corporate exercise (bonus issue and share split) on 8 Sept 2010, the price of KFC Holdings was adjusted from 22.12 to 2.81 and it looks more attractive and cheaper thereafter. 

KFC Holdings is owned by Johor Corporation which controlling 50.04% of shareholding via QSR Ventures Sdn Bhd and QSR Berhad.

Buy opportunity for KFC Holdings. Why?

1. Strong financial position

KFC Holdings is a company which has good financial position as follows;

a.       Current ratio is 1.22 which mean strong cash position.

b.      Gearing ratio is 0.6 which mean  very low debt.

c.       ROE measures the capability of making profit. Benchmark of ROE is 15% as recommended by Warrant Buffet where as the latest KFC Holdings ROE was 16.47 and for  4 years average ROE, it  was 17.42. Both are higher than Warrant Buffet’s benchmark.

2. Good dividend payment

Since year 2005, lowest dividend paid was 16 sen. The highest, in turn, was 26 sen which paid this year and before the corporate exercise. The par value was RM1.00 before corporate exercise. It is mean that, based on par value KFC Holdings has paid dividend ranging from 16% to 26% to shareholders since year 2005 and it was lucrative dividend.

3. Growing net profit.

The net profit growth of KFC Holdings (in million) can be seen as follows;

            Year                            Net Profit (RM million)

           

            2005                            -31.50

            2006                            99.05

            2007                            104.27

            2008                            118.54

            2009                            130.40

            2010                            140.00 (expectation)

The statistic above shows the growing pattern of KFC Holdings net profit.

4. Expanding business – local and oversea.

In term of business networks, company currently has  495 outlets nationwide (32 of them are drive-thru outlets).

In year 2011, KFC Holdings will expand their business locally and abroad.

As for local expansion plan, the company will open another 20 outlets (12 of them are drive-thru outlets) nationwide.

As for overseas business operation, as well as Cambodia, KFC Holdings has started operation in Mumbai India. KFC Holdings has been appointed as master franchisee by master franchisor in USA namely Yum! Brand Inc. As a master franchisee, KFC Holdings has a right to open outlets throughout India.

At the moment, the company has 7 outlets and in year 2011 they will open another 17 outlets. We believe that the business expansion in India will be supported by the growing middle income group in tandem with  encouraging economic growth which expected to grow at 9 to 10 per cent annually.  

KFC is the world class brand.

We can follow Warrant Buffet way who always prefer to invest in well known brand company like Coca Cola.

- Sabri Jalil