This article first appeared in The Edge Financial Daily on April 11, 2019
KUALA LUMPUR: QSR Brands (M) Holdings Bhd, which operates the KFC and Pizza Hut chain of restaurants in Malaysia, has decided to postpone its planned initial public offering (IPO) indefinitely after key potential investors deemed its valuation unpalatably high.
QSR Brands had initially hoped to price its IPO at price-earnings (PE) multiple of somewhere in the mid-20s.
But people close to the transaction told The Edge Financial Daily yesterday that cornerstone investors were only willing to subscribe to the IPO if the shares were priced at a PE multiple of 15 to 17 times.
“At about RM5 billion, the valuation was far below the RM6 billion touted by Johor Corp (JCorp) president and chief executive officer Datuk Kamaruzzaman Abu Kassim in May last year. As such, its management and shareholders had decided to shelve the offering,” a source said.
It is understood that QSR Brands had on Monday notified investment banks involved in the IPO of its decision to defer its plan to go public.
In a brief statement yesterday, QSR Brands confirmed that its management and shareholders have decided to retime the IPO “following discussions with its bankers”.
Maybank Investment Bank Bhd and RHB Investment Bank Bhd were the joint principal advisers for the offering.
“In the meantime, the group will continue to focus on delivering results through the execution of the various initiatives for KFC, Pizza Hut and Ayamas,” QSR Brands added.
In 2012, JCorp, together with the Employees Provident Fund (EPF) and private equity firm CVC Capital Partners Ltd, took QSR Brands and its unit KFC Holdings (M) Bhd private in a RM5.2 billion deal that was completed in February 2013.
JCorp is currently the major shareholder of QSR Brands, with a 51% stake, while the EPF holds 25% and CVC owns 24%.
The pricing comes at a delicate time for Malaysia’s stock market, with the benchmark FBM KLCI falling 3% year to date to close at 1,639.46 points yesterday.
The group revealed its IPO plans in October last year and was aiming to raise RM2 billion by listing up to 1.465 billion shares on the Main Market of Bursa Malaysia.
On May 2, 2018, Kamaruzzaman had also pegged QSR Brands’ market value upon listing at an estimated RM6 billion. At the time, it was aiming to list by November that year, but this was delayed as the group said it was waiting for its 2018 accounts to be audited.
In March, QSR Brands managing director Datuk Seri Mohamed Azahari Kamil also reportedly said the group was on track to return to Bursa by the first half of 2019.
Companies Commission of Malaysia data showed that QSR Brands’ net profit grew 4.7% to RM192.59 million in the financial year ended Dec 31, 2018 (FY18), from RM183.95 million in FY17. Revenue rose a marginal 1% to RM4.61 billion from RM4.56 billion in FY17.
The region’s largest quick service restaurant operator said in its statement yesterday that it operates 820 KFC restaurants in Malaysia, Singapore, Brunei and Cambodia. It is also the operator of Pizza Hut in Malaysia and Singapore, with more than 390 restaurants and delivery concepts in Malaysia and 75 restaurants and delivery concepts in Singapore.
In addition to its restaurant operations, it is also involved in breeder and contract broiler farming, hatchery, poultry production and processing, as well as a host of ancillary businesses including baking, commissary and sauce production.
Meanwhile, QSR Brands’ move raises questions about poultry producer Leong Hup International Bhd’s IPO plans. It was looking to raise as much as US$600 million (RM2.46 billion) by selling up to 1.6 billion shares to repay borrowings and for capital expenditure.
A source familiar with the matter told The Edge Financial Daily that Leong Hup remains on track to be listed on the local stock exchange in May “although its market value may reduce to about RM4 billion”.
According to another source, Leong Hup had originally planned for a market value of about RM8 billion to RM10 billion.
QSR Brands and Leong Hup are two of the most-anticipated IPOs this year after the local IPO market suffered its worst year in 45 years in 2018. So far this year, no companies have been listed on the Main Market of Bursa.