This article first appeared in The Edge Malaysia Weekly on August 9, 2021 - August 15, 2021

QSR Brands (M) Holdings Bhd, the operator of the KFC and Pizza Hut restaurant chains, is again mulling a multi-billion-ringgit IPO that could bring some excitement to Bursa Malaysia.

Its controlling shareholder Johor Corp Bhd (JCorp) has revived relisting plans for the fast food operator and has engaged Maybank Investment Bank Bhd and RHB Investment Bank Bhd as its IPO advisers, sources say.

The IPO, which has been shelved more than once, comes as JCorp carries out a group-wide restructuring, which includes a full-scale review of its existing business ventures.

There have been several delays in the fast food operator’s plan to float its shares on the local bourse after it was delisted more than eight years ago.

In April 2019, QSR “officially” decided to postpone its listing plan after key potential investors deemed its valuation unpalatably high. It was said to have pegged its IPO at a price-earnings (PE) multiple of about 25 times.

It is interesting to see the valuation JCorp is looking at this time around amid a challenging market environment for food and beverage (F&B) players.

“Taking the cue from Mr DIY Group (M) Bhd, consumer players are hoping to fetch lofty valuations for their listing exercise,” says a source.

During its prospectus launch last October, Mr DIY was valued at a PE multiple of 31.6 times based on its issue price of RM1.60 per share. The home improvement retailer’s share price has more than doubled to close at RM3.51 last Friday, valuing it at RM22.03 billion.

It is not immediately known the impact of the pandemic on QSR’s business operations, as the company has yet to file its financials for 2020. For 2019, QSR recorded a 6.36% drop in net profit to RM180.34 million against RM192.59 million for 2018, according to a CTOS search. This was on the back of a 5.4% increase in revenue to RM4.86 billion from RM4.61 billion.

Based on a PE multiple of 31 times of its earnings in FY2019, QSR could be valued at RM 5.59 billion. Nonetheless, the company’s profit is certainly affected by the lockdown. Hence, it would be interesting to see how the advisers would normalise the earnings to take into account the impact of the Covid-19 pandemic.

In the case of QSR, HLIB Research analyst Syifaa’ Mahsuri Ismail, who covers the consumer sector, says a PE multiple in the mid to high teens would be justifiable, in line with that of other retail players such as Berjaya Food Bhd and Focus Point Holdings Bhd.

“However, looking at QSR as the F&B operator, coupled with this fluid pandemic environment, I would be cautiously optimistic on the short- to medium-term outlook on the back of the prolonged restrictions in the Klang Valley specifically. With dine-in not allowed and the hazy outlook for F&B operators, I think their businesses will struggle despite the demand from takeaway and other food delivery channels,” she tells The Edge.

QSR and its unit KFC Holdings (M) Bhd were taken private in February 2013 by JCorp, the Employees Provident Fund (EPF) and private equity firm CVC Capital Partners Ltd, in a deal worth RM5.2 billion. EPF partnered with CVC using Melati Asia Holdings Ltd as their vehicle. The EPF holds a 51% stake in Melati and CVC holds the remaining 49% stake.

Currently, Massive Equity wholly-owns QSR. JCorp holds a 55.63% stake in Massive Equity, while Melati holds a 44.01% stake.

JCorp also has interests in Kulim (M) Bhd, KPJ Healthcare Bhd, Al-’Aqar Healthcare REIT, Al-Salam REIT, Johor Land Bhd, EA Technique Bhd and Damansara Holdings Bhd.

QSR operates over 1,300 KFC and Pizza Hut restaurants in Malaysia, Singapore, Brunei and Cambodia.

Its total assets grew 32.75% to RM6.63 billion in 2020 from RM5 billion in 2019, while total liabilities surged 60.75% to RM4.06 billion from RM2.52 billion.

Early this year, QSR appointed Tan Sri Jamaludin Ibrahim — former president and CEO of Axiata Group Bhd — as its chairman.

Despite the adverse impact from the pandemic, the Malaysian IPO market continues to stay buoyant this year. A total of 13 companies have been listed on the Main Market and ACE Market so far.

Upcoming notable listings include integrated logistics services provider Swift Haulage Bhd, electrical appliance store Senheng New Retail Bhd and glove maker HARPS Holdings Bhd.

Other companies that have filed their prospectus exposure with the Securities Commission Malaysia are MN Holdings Bhd, Aurelius Technologies Bhd, Coraza Integrated Technology Bhd, Pappajack Bhd, Siab Holdings Bhd, Orgabio Holdings Bhd, Keyfield International Bhd, Ecomate Holdings Bhd and CEKD Bhd.

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