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This article first appeared in The Edge Financial Daily on September 27, 2017

Bison Consolidated Bhd
(Sept 26, RM2.37)
Upgrade to hold with a target price of RM2.28:
Bison Consolidated Bhd’s sales for the third quarter of financial year 2017 (3QFY17) grew 25.5% year-on-year (y-o-y) to RM81.7 million, while core net profit surged 52.3% y-o-y to RM6.2 million. This led to a cumulative core net profit of RM18.7 million for the first nine months of FY17 (9MFY17), which was within expectations at 75% of our and 77% of Bloomberg consensus full-year forecasts. As expected, no dividend was declared for the quarter.

Bison’s 9MFY17 turnover rose 24.1% y-o-y to RM237.2 million on the back of a higher store count (44 net new stores as at end-July) and improved advertising and promotion income. 9MFY17 gross profit margin expanded 1.4 percentage points (ppts) y-o-y to 37.1% as a result of a better merchandise mix (higher sales of fresh-food products) and continuous consumer promotional activities. This, alongside lower effective tax rates (-1.7 ppts y-o-y), lifted core net profit 25.1% y-o-y.

On a sequential basis, Bison’s 3QFY17 revenue advanced 3.1% quarter-on-quarter (q-o-q) to RM81.7 million in spite of the quarter being seasonally softer (mainly due to the fasting month of Ramadan, which fell in June this year). This was mostly due to a higher number of stores as well as improved sales mix. Nonetheless, 3QFY17 core net profit fell 0.4% q-o-q to RM6.2 million as a result of higher operating expenses (increased rental, staff and utility costs).

Earlier this month, Bison proposed to undertake a private placement of up to 10% of its paid-up share capital (or 31 million shares) for the purpose of acquiring a 4.4-acre (1.78ha) plot of industrial land together with a single-storey warehouse in Kota Damansara, Selangor, for RM50 million cash. Assuming full subscription of the placement shares at an illustrative price of RM2.50 per share (as per its announcement), Bison expects to raise total gross proceeds of RM77.5 million.

The proposed land acquisition will be 100% funded by the proceeds from the share placement and if funds fall short, the balance of the required capital expenditure will be funded via either internally generated funds and/or bank borrowings. 

Bison’s share price has retraced about 15% since the beginning of September. As such, we upgrade our call from “reduce” to “hold” as we believe investors have priced in the potential earnings dilution and share price overhang from the share placement exercise. — CIMB Research, Sept 25
 

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