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This article first appeared in The Edge Financial Daily on June 16, 2017

Bison Consolidated Bhd
(June 15, RM2.35)
Change to hold with a higher target price of RM2.28:
Bison Consolidated Bhd’s second quarter of financial year 2017 (2QFY17) turnover increased 23.3% year-on-year (y-o-y) to RM79.3 million, while core net profit grew 20.4% y-o-y to RM6.2 million. This brought first half FY17 (1HFY17) core net profit to RM12.6 million, which came in within our and consensus expectations at 51% and 53% of the respective full-year estimates. An interim dividend of two sen was also declared during the quarter (versus 2QFY16’s dividends per share: 1.5 sen), which translates into a payout ratio of 49%.

The group reported 1HFY17 revenue of RM155.5 million, ticking up 23.4% y-o-y, thanks to a higher number of stores added to its portfolio (+31 net new stores as at Apil 2017), as well as a higher contribution from its advertising and promotion income. Meanwhile, an improved sales mix (increased fresh food product sales) and consumer promotional activities boosted gross profit margin by 0.6% points y-o-y to 37%. Taken together with lower effective tax rates, core net profit advanced 15% y-o-y to RM12.6 million.

Compared with 2QFY16, revenue grew 23.3% y-o-y on the back of new stores opening as well as a better sales mix. This offsets the higher selling and distribution expenses due to its store expansion (higher rental, and staff and utilities costs), resulting in higher core net profit growth y-o-y (+20.4% yoy). 2QFY17 gross profit margin also ticked up 3.5% points y-o-y to 38% as a result of improved sales volume of its high-margin products as well as ongoing promotional activities conducted alongside its suppliers.

As at April 2017, the group opened 31 stores, bringing its total number of stores to 325, and it is on track to meet its target of opening 70 stores a year by end-FY18. The group is currently present in most states in Malaysia, with approximately 80% of its stores in the Klang Valley and Selangor, and the majority located in shopping malls and high-foot traffic retail locations.

We also gather that the progress of its new food processing facility is on track and management is confident that it will be operational by end-FY18. With this, Bison would be able to distribute its own-brand fresh food product line (which commands more than 50% gross profit margin), which we believe could help to drive up profitability. 

Note that fresh food products make up circa 8%-10% of the group’s total revenue. — CIMB Research, June 14

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