PP 7767/09/2010(025354)

23 June 2010

Malaysia Corporate Highlights RHB Research

Institute Sdn Bhd
A member of the
RHB Banking Group
New s Upda te Company No: 233327 -M

23 June 2010
MARKET DATELINE

KFC Holding (M) Share Price

Fair Value
:
:
RM9.10
RM11.20 (ex-all: RM2.80)
Share Split, Bonus And Free Warrants Issue Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (KFC; Code: 3492) Bloomberg: KFC MK

FYE Dec Turnover Net Profit EPS Chg PER C. EPS^ P/NTA Net gearing ROE Gr. Div.
(RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) Yld. (%)
2009a 2,297.4 130.4 65.8 10.0 13.8 - 2.5 Net cash 17.6 2.6
2010f 2,650.9 152.8 77.1 17.2 11.8 74.0 2.2 Net cash 18.0 2.9
2011f 3,012.5 177.5 89.5 16.2 10.2 81.0 1.9 Net cash 18.2 3.1
2012f 3,406.5 204.6 103.2 15.3 8.8 96.0 1.6 Net cash 18.2 3.3
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC ^ Consensus Based On IBES Estimates

♦ Share split, bonus and warrants issue. KFCH has proposed three Issued Capital (m shares) 198.3
exercises to be completed in sequence: firstly a 1-to-2 share split; secondly, Market Cap (RMm) 1804.3
a 1-for-2 bonus issue; and thirdly, a free warrants issue on a 1-for-25 basis. Daily Trading Vol (m shs) 0.09

The entitlement dates are to be announced later. The rationale for these 52wk Price Range (RM) 6.51-9.20
Major Shareholders: (%)
exercises is to improve the liquidity and marketability of KFCH shares and is
QSR Ventures 50.3
targeted for completion by 3Q2010.
Lembaga Tabung Haji 24.8

(1) Proposed 1-to-2 share split – existing 198.27m shares of RM1.00

each to be split into 396.55m shares of RM0.50 each; FYE Dec FY10 FY11 FY12
EPS chg (%) - - -
Var to Cons (%) 4.1 10.5 7.5
(2) Proposed 1-for-2 bonus issue – based on share capital post-share
split, up to 396.55m bonus shares to be issued, bringing KFCH’s total PE Band Chart
issued share capital to 793.10m upon completion;

(3) Proposed free warrants on 1-for-25 basis – based on share capital PER = 14x
PER = 12x
of KFCH post-split and bonus, up to 31.72m free warrants to be issued. PER = 10x

The warrants have a tenure of five years, with the exercise price to be
determined later. The proceeds arising from the exercise of the free
warrants shall be utilised for working capital and to help strengthen the
balance sheet and market capitalisation of the company. Upon full
exercise of warrants, KFCH’s share capital would rise to 824.82m. Ex-all, Relative Performance To FBM KLCI
KFCH’s theoretical share price would be RM2.28.

♦ Positive for sentiment. Although this will not have any impact on FBM KLCI

valuations for now, we believe it will be viewed positively as it would buoy

retail sentiment on the stock due to the improved liquidity.
KFC Holdings (M)

♦ Forecasts. No changes to our forecasts for now.

♦ Risks. 1) Bird/swine flu escalation; 2) Escalation of corn and soybean prices,

which would eat into margins; and 3) Deteriorating consumer spending
power, resulting in lower same-store sales (SSS) growth.

♦ Investment case. We continue to like KFCH as we expect strong SSS

growth going forward, while its aggressive new store expansion strategy
would help strengthen its presence in the country and enable KFCH to
maintain its strong market share. We have rolled forward our valuation base
Hoe Lee Leng
year to FY11. As such, our fair value has now been increased to RM11.20 (603) 92802239
(ex-all: RM2.80), from RM9.63 (ex-all: RM2.41) based on unchanged PER hoe.lee.leng@rhb.com.my
target of 12.5x, a 14% discount to the consumer sector PER of 14.5x.

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 23 June 2010

Table 2. Effect Of Proposals On KFCH’s Share Capital

Share Capital Par value No. Shares RM’m value Theoretical ex-price (RM)

Existing @ 18 Jun 10 1.00 198.27 11.20

Upon completion of share split (1) 0.50 396.55 198.27 5.60

Upon completion of bonus issue (2) 0.50 396.55 198.27 2.80

Assuming full exercise of warrants (3) 0.50 31.72 15.86 *

TOTAL FD ISSUED SHARES 824.82 412.41

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Dec (RMm) FY09 FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 2,297.4 2,650.9 3,012.5 3,406.5 Number of new stores 58 54 54

Turnover growth (%) 5.4 15.4 13.6 13.1 Ave revenue per outlet (RMm) 3.2 3.4 3.6
Capex (RMm) 88.6 83.0 83.0
195.5 214.8 248.4 285.2
EBIT 8.5 8.1 8.2 8.4
EBIT margin (%)

Net Interest (5.4) (3.0) (2.4) (1.7)

Associates 0.0 0.0 0.0 0.0

Pretax Profit 190.0 211.8 246.0 283.6

Tax (57.2) (57.2) (66.4) (76.6)
Minorities (2.4) (1.8) (2.1) (2.4)
Net Profit 130.4 152.8 177.5 204.6
Source: Company data, RHBRI estimates

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 23 June 2010

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary
to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an
offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever
and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time
have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy
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may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans
of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services
from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over
a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities,
subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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