KFC Holdings (Malaysia) Bhd (Jan 20, RM7.90)Maintain buy at RM7.90, target price at RM8.60: A&W launched its first mobile fast food truck on Tuesday, according to a local daily.
KUB Malaysia Bhd (KUB), which owns A&W Restaurants (Malaysia) Sdn Bhd, said the mobile trucks would target hotspots in Peninsular Malaysia, particularly areas without A&W’s presence.
We believe A&W’s mobile fast food truck concept is a first for the fast casual and quick service industry in Malaysia. KUB group managing director Datuk Mohammad Nazar Samad said the group plans to operate three trucks by end-2010, at a total price tag of RM1 million.
While we are excited by A&W’s initiative to experiment with a new idea, we see the mobile trucks functioning more as an advertising medium to create brand name visibility.
A quick check reveals mixed results on the use of mobile fast food trucks in markets abroad.
Although it remains to be seen how successful these mobile fast food trucks would be in contributing to top line growth, we do not see a significant impact to earnings for KFCH.
Judging by its earnings performance, we believe KFCH’s popularity as a fast casual and quick service restaurant remains strong in the Malaysian market. No doubt McDonald’s is a close competitor. However, KFCH has done well in positioning its whole chicken pieces as the choice for a main meal.
Additionally, KFCH has a stronger network of more than 430 outlets nationwide as compared to 31 for A&W.
KFCH will be releasing its 4QFY09F results soon, of which we expect earnings to be better than the preceding quarter’s due to festive seasons and school holidays.
Net profit as at 9MFY09 currently makes up 78% of our FY09F forecast of RM122 million. As such, KFCH’s earnings for the 12 months ended Dec 31, 2009 could beat our estimate by 7% to 9%.
No change to our earnings forecast pending release of the group’s results. We maintain buy with an unchanged fair value of RM8.60 based on price earnings (PE) of 14 times FY09F earnings. — AmResearch, Jan 20
This article appeared in The Edge Financial Daily, January 21, 2010.