This article first appeared in The Edge Financial Daily, on July 27, 2016.

Bison Consolidated Bhd
(July 26, RM1.47)
Maintain add with an unchanged target price (TP) of RM1.80: Bison Consolidated Bhd announced last Friday that its wholly-owned subsidiary, Otaru Fine Food Sdn Bhd, had entered into a sale and purchase agreement with Gemini Flour Mills (M) Sdn Bhd to acquire a 1.4-acre (0.57ha) piece of freehold vacant land in Rawang, Selangor, for a total cash consideration of RM6.7 million. The proposed acquisition will be completed within one month’s time. This did not come as a surprise as we understand that the newly acquired land is earmarked for the development of its 40,000 sq ft to 50,000 sq ft in-house food-processing facility. The facility is expected to be completed and fully operational by the financial year ending Oct 31, 2018.

Meanwhile, we believe that funding will not pose an issue and will come from the proceeds raised from its recent initial public offering, which has already been factored into our forecasts. We believe that the acquisition is in line with Bison’s target of expanding its in-house fresh food product offerings, which could lift profitability in the longer term. Note that Bison’s in-house manufactured fresh food products could fetch a gross profit margin of more than 50%, compared with that of current food supplied by third-party suppliers of 40%.

On another positive note, the group has received approval for the registered franchise licence for its main brand, myNEWS.com. While details are scant at this juncture on its franchise business model, we understand that the group will go about this on a selective basis and will not be overly aggressive on its franchise expansion for now. Nonetheless, if proven successful, this could provide a platform for future growth in the country and also create a recurring income stream for the group.

All in, we are positive on Bison’s latest developments as it cements its plans to increase profitability through higher-margin products as well as potentially expand its footprint in the country in the longer term via its franchising scheme. — CIMB Research, July 25