Johor Corp seeks to refinance the RM3.6bil loan obligation that will become due in the middle of 2012.

Saturday December 18, 2010

JCorp seeks to remove Muhammad Ali
By RISEN JAYASEELAN
risen@thestar.com.my


PETALING JAYA: Johor Corp (JCorp) is seeking to remove Tan Sri Muhammad Ali Hashim, its previous head for 18 years, from the boards of three listed companies it has direct stakes in.

The move seems to confirm speculation that Muhammad Ali, who had suddenly resigned as JCorp's CEO in July, is no longer in the good books of the powers that be in the state of Johor.

JCorp has called for EGMs at Kulim (M) Bhd, KPJ Healthcare Bhd and Damansara Realty Bhd (DRealty) for this purpose.

The removal of Muhammad Ali will be via ordinary resolutions at each of these companies, which means that a simple majority of shareholder votes would achieve the desired result.

While JCorp controls more than 50% of the equity of Kulim and DRealty, it owns only 237.8 million shares in KPJ Healthcare, according to the latest shareholding changes filed with Bursa Malaysia. And according to Bloomberg data, this number of shares amounts to only a 42.6% stake in KPJ.

Hence it appears that for Muhammad Ali to be ousted from KPJ's board, it is going to have to acquire more shares in KPJ or seek the support of other shareholders.

JCorp has been in the news recently after three bids had been presented to Kulim for its controlling stake in QSR Brands Bhd, which in turn is the parent company of KFC Holdings (M) Bhd.

After some delay, JCorp, via Kulim, finally said it was not selling QSR or its subsidiaries, noting that these were key assets in the group and that more value could be extracted from them.

That raised the question: if JCorp was not selling, how come the bids came in from such established names as private equity giants The Carlyle Group and CVC Capital?

It had been reported that insiders said Muhammad Ali could be responsible for putting QSR up for sale. Muhammad Ali is chairman of Kulim, QSR and KFC as well as of KPJ Healthcare and DRealty.

It has also been reported that Muhammad Ali's sudden departure from JCorp had to do with the mountain of debt at JCorp, which was built up via ambitious acquisitions of companies during his tenure as CEO, something that Muhammad Ali has denied in the past, noting that the group has sufficient assets that can be sold to repay off the debt.

Muhammad Ali's tenure at JCorp had attracted both praise and criticism. He had made JCorp one of the most dynamic state investment arms but detractors say he ruled the group like his own fiefdom and expanded the group too fast, accumulating too much debt in the process.

A strong advocate of what he calls business jihad, Muhammad Ali has said he believes business is a good way to help people as it can create wealth and jobs and eliminate poverty.

JCorp recently hired Kamaruzzaman Abu Kassim, its head of finance, as its new CEO.

Some insiders reckon that the action to remove Muhammad Ali signals a resolve by Kamaruzzaman to usher in the new leadership at the group in a post Muhammad Ali era.

It's actually not out of the ordinary. Muhammad Ali had stepped down as JCorp CEO some months ago although he has not relinquished his chairmanship and directorships at the JCorp-controlled companies. This is a matter of process more than anything else, which would likely lead to JCorp putting in a replacement for him as soon as the removal is completed, said one insider.

Kamaruzzaman recently told the media that JCorp would not be selling any of its assets to settle its loan obligations. Instead, it would seek to refinance the RM3.6bil loan obligation that will become due in the middle of 2012.

All three EGMs for Muhammad Ali's removal will be held next month, specifically on Jan 17 for Kulim, Jan 21 for DRealty and Jan 26 for KPJ Healthcare.

http://biz.thestar.com.my/news/story.asp?file=/2010/12/18/business/7647835&sec=business

KFC Holdings (Malaysia) Berhad

Date announced 24/11/2010
Quarter 30/09/2010 Qtr 3 FYE 31/12/2010

STOCK KFC C0DE 3492

Price $ 3.95 Curr. ttm-PE 21.87 Curr. DY 1.52%
LFY Div 6.00 DPO ratio 36%
ROE 16.6% PBT Margin 8.9% PAT Margin 6.0%

Rec. qRev 631551 q-q % chg 4% y-y% chq 8%
Rec qPbt 56236 q-q % chg 8% y-y% chq 14%
Rec. qEps 4.82 q-q % chg 7% y-y% chq 9%
ttm-Eps 18.06 q-q % chg 2% y-y% chq 16%

Using VERY CONSERVATIVE ESTIMATES:
EPS GR 5% Avg.H PE 23.00 Avg. L PE 20.00
Forecast High Pr 5.30 Forecast Low Pr 3.26 Recent Severe Low Pr 3.26
Current price is at Middle 1/3 of valuation zone.

RISK: Upside 66% Downside 34%
One Year Appreciation Potential 7% Avg. yield 2%
Avg. Total Annual Potential Return (over next 5 years) 9%

CPE/SPE 1.02 P/NTA 3.62 NTA 1.09 SPE 21.50 Rational Pr 3.88



Decision:
Already Owned: Buy, Hold, Sell, Filed; Review (future acq): Filed; Discard: Filed.
Guide: Valuation zones - Lower 1/3 Buy; Mid. 1/3 Maybe; Upper 1/3 Sell.

Aim:
To Buy a bargain: Buy at Lower 1/3 of Valuation Zone
To Minimise risk of Loss: Buy when risk is low i.e UPSIDE GAIN > 75% OR DOWNSIDE RISK <25%
To Double every 5 years: Seek for POTENTIAL RETURN of > 15%/yr.
To Prevent Loss: Sell immediately when fundamentals deteriorate
To Maximise Gain & Reduce Loss: Sell when CPE/SPE > 1.5, when in Upper 1/3 of Valuation Zone & Returns < 15%/yr


Stock Data: Recent Stock Performance:
Current Price (11/19/2010): 4.25
(Figures in Malaysian Ringgits)
1 Week 2.2% 13 Weeks 30.4%
4 Weeks 59.2% 52 Weeks 129.7%

KFC Holdings (Malaysia) Berhad Key Data:
Ticker: KFC Country: MALAYSIA
Exchanges: KUL Major Industry: Recreation
Sub Industry: Restaurants & Fast Food Franchisers

2009 Sales 2,297,431,000
(Year Ending Jan 2010).
Employees: 13,217

Currency: Malaysian Ringgits Market Cap: 3,370,675,000
Fiscal Yr Ends: December Shares Outstanding: 793,100,000
Share Type: Ordinary Closely Held Shares: 594,819,200


Day's Range: 3.92 - 4.00
52wk Range: 2.70 - 11.50
Volume: 727,600
Avg Vol (3m): 2,204,970


Related:

US-based Carlyle makes higher bid for QSR

Singapore fund exits KFCH

Singapore fund exits KFCH

Tags: Arisaig Asean Fund Ltd | Lembaga Tabung Haji | QSR Brands Bhd

Written by Financial Daily
Tuesday, 20 October 2009 11:00

KUALA LUMPUR: Singapore-based Arisaig Asean Fund Ltd has exited KFC Holdings (Malaysia) Bhd after it sold all its 6.89% stake or 13.65 million shares last Thursday.

A filing with Bursa Malaysia showed the fund sold the shares in a married deal for an undisclosed price. The buyer of the stake was not revealed.

Arisaig Asean Fund was the third largest shareholder in KFCH and the share price had performed well in recent months. KFCH closed at RM7.50 on that day. Analysts said Arisaig Asean Fund had been reducing its stakes in several Malaysian companies to meet redemptions.

The single largest shareholder in KFCH is QSR BRANDS BHD [] which owns 50.25% or 99.63 million shares. The second largest shareholder is Lembaga Tabung Haji with 24.87% or 49.31 million shares. KFCH yesterday closed 50 sen higher at RM8, the highest since Nov 13, 2007.


This article appeared in The Edge Financial Daily, October 20, 2009.

QSR hits 52-week high of RM3.64

QSR hits 52-week high of RM3.64

Tags: 52-week high | QSR Brands Bhd

Written by Yong Min Wei
Friday, 09 October 2009 11:04

KUALA LUMPUR: QSR BRANDS BHD [] hit a fresh 52-week high of RM3.64 yesterday, as buying interest in the food and beverage (F&B) retail group continues, premised on the defensive nature of its businesses.

The counter rose to an intra-day high of RM3.72 before closing at RM3.64, with 225,100 shares done. A check with Bloomberg data showed that QSR has been rising daily since the beginning of this week from its close of RM3.25 last Friday.

In a research report yesterday, CIMB Research reiterated its outperform call on the stock, its top pick in the F&B sector, with a target price of RM5.94 from RM5.30.

CIMB said its revised price target yielded a 61% upside, as the research house rolled over its valuation horizon to calendar year 2011.

“QSR remains an attractive growth story with a three-year earnings per share compounded annual growth rate of 11.9%,” it said.

The research house said QSR offered a cheaper entry into the KFC business with the added attraction of the growing Pizza Hut business and higher dividend yields.

QSR owns 50.25% of KFC Holdings Bhd (KFCH), which runs both the KFC and Pizza Hut dine-in and fast-food restaurant chain in the country and overseas, including Singapore and Cambodia. CIMB said QSR commanded 70% of the country’s pizza market and 11% of the Western quick-service restaurant.

“But, investors are paying an undeservedly low price earnings of 3.2 times for the Pizza Hut business when it deserves to trade at a premium given its growth potential,” it said. CIMB added that QSR might open its first KFC outlet in India by year-end.

Under a deal with the global Yum! Group, KFCH would invest US$5 million (RM17 million) in Mumbai and US$1 million in Pune, with the target of opening 10 KFC outlets in Mumbai and two in Pune, with one slated for opening in Mumbai by year-end, it said. CIMB added that the Indian outlets were expected to be profitable in three years.

“KFCH’s entry into India is expected to provide the company with an opportunity to diversify its earnings base and reduce its dependence on Malaysia and Singapore.

“We understand that there are four existing KFC outlets in Mumbai, operated by three franchise holders which have done little to grow the franchise.

There are only about 40 KFC outlets in India while there are 35 McDonald’s outlets in Mumbai alone,” CIMB said. Meanwhile, QSR’s expansion in Cambodia was on track, with its Pizza Hut operations set to break even next year, the research house said.


This article appeared in The Edge Financial Daily, October 9, 2009.

KFC Holdings (Malaysia) Bhd

*Wright Quality Rating: DAB1
Liquidity D (Fair)
Financial Strength A (Outstanding)
Profitability B (Excellent)
Growth 1 (Lowest)

Announcement
Date/ Fin.Yr. End/ Qtr/ Period End/ Rev RM '000/ Profit RM'000 /EPS Amended
21-May-09 31-Dec-09 1 31-Mar-09 526,639 29,433 14.47 -
26-Feb-09 31-Dec-08 4 31-Dec-08 601,907 28,717 14.32 -
20-Nov-08 31-Dec-08 3 30-Sep-08 552,440 31,824 15.86 -
20-Aug-08 31-Dec-08 2 30-Jun-08 529,843 31,002 15.34 -

(Based on above: ttm-eps was 60 sen)


Higher contribution from the KFC Restaurants segment: (1) from continuing network expansion (38 new restaurants added last year), and (2) from new sales channel such as breakfast and extension of operating hours of certain outlets to 24 hours. This is negated by increased cost of raw material.

Poultry Integrated segment: Higher turnover due to (1) improved sales to the KFC restaurants and (2) better sales of its Ayamas products both locally and in export sector. This is partially negated by the increasing cost of commodities which resulted in higher cost of internally produced poultry products.

-----

Historical data:

Last 5-Yr
DY Range 3.4% - 2.4%
PE Range 9.3 - 13.2 (Mean PE 11.25)
EPSGR 28.4%

Last 10-Yr
DY Range 2.9% - 2.0%
PE Range 12.7 - 18.6
EPSGR 47.1%

-----
What the management wrote in the last quarter release:
Current Year Prospects

The global economy deteriorated further during the first quarter. In Singapore, initial estimates indicated that the Singapore economy registered a negative growth of 11.5% in the first quarter and the Ministry of Trade and Industry announced that the Gross Domestic Product would contract by 6% to 9% in 2009. (Source : Ministry of Trade and Industry, Singapore). It was widely expected that the Malaysian economy will improve in the second half of 2009 supported by the stabilization in global economic conditions. These expectations were however dampened by the outbreak of Influenza A (H1N1) in late April 2009, which may slow down the economic recovery process.

With the prevalent economic uncertainties, consumer spending is expected to be negatively affected. Thus the Group will continue to focus on value to customers by offering value for money products to align with its customers spending ability.

Based on the foregoing, the Board is optimistic of sustaining the Group’s performance in the balance of the year. The Group has laid down plans to increase revenue and profitability by increasing the restaurants network, enhancing customer experience, developing new and improved products, expanding business activities, developing better cost efficiencies and improving productivity at all the restaurants and manufacturing facilities.

-----

Using ttm-eps 60 sen and expected estimated dividend (SPG) 16.5 sen

At today's price of 7.30:
DY is estimated 2.26% (Below the mean of the DY range)
PE is 12.2 (Just above the mean of the PE range)
PEG is 12.2/28.4 = 0.43 (Cheap)

At 7.30, one would be buying at slightly higher than the fair PE for KFC. However, valuation based on PEG is cheap.

The uncertainty as usual is in judging how the business will grow in the future. However, it is alright to acquire a good company at fair price. The question you should ask is: Will KFC be able to grow its business and earnings strongly in the next few years? The last 4 quarters revenues and earnings have been flat, probably due to the weak economic environment.

Anyway, KFC has done well the last 5 years and should continues to prosper, given the increasing numbers of Malaysians entering the middle income class group.

As usual, you will have to make your own decision in investing.



-----

*Wright Quality Ratings are based on numerous individual measures of quality, grouped into four principal components: (1) Investment Acceptance (i.e. stock liquidity), (2) Financial Strength, (3) Profitability & Stability, and (4) Growth. The ratings are based on established principles using 5-6 years of corporate record and other investment data.

The ratings consist of three letters and a number. Each letter reflects a composite qualitative measurement of numerous individual standards which may be summarized as follows:
A = Outstanding; B = Excellent; C = Good; D = Fair; L = Limited; N = Not Rated.

The number component of the Quality Rating is also a composite measurement of the annual corporate growth, based on earnings and modified by growth rates of equity, dividends, and sales per common share. The Growth rating may vary from 0 (lowest) to 20 (highest).