PP 7767/09/2010(025354)

5 August 2010

Malaysia Corporate Highlights RHB Research

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

5 August 2010
MARKET DATELINE

KFC Holding (M) Share Price

Fair Value
:
:
RM10.78
RM12.97(ex-all: RM3.24)
Purchase Of Two Shopoffice Units 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 16.4 3.0 Net cash 17.6 2.2
2010f 2,650.9 152.8 77.1 17.2 14.0 74.0 2.6 Net cash 18.0 2.4
2011f 3,012.5 177.5 89.5 16.2 12.0 81.0 2.2 Net cash 18.2 2.6
2012f 3,406.5 204.6 103.2 15.3 10.4 96.0 1.9 Net cash 18.2 2.8
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC ^ Consensus Based On IBES Estimates

♦ Purchase of two adjoining shopoffices. KFCH has proposed to acquire Issued Capital (m shares) 198.3
two units of adjoining shopoffices in Taman Bukit Tiram Fasa 3, Ulu Tiram, Market Cap (RMm) 2137.4
Johor for a total purchase consideration of RM1.38m from Advance Daily Trading Vol (m shs) 0.1
Development Sdn Bhd, a wholly owned subsidiary of Johor Land. Both 52wk Price Range (RM) 6.51-11.5
Major Shareholders: (%)
purchases will be satisfied via internally-generated funds. We believe both
QSR Ventures 50.3
units will be utilised to open a new KFC outlet and a Pizza Hut (under QSR
Lembaga Tabung Haji 24.8
Brands) outlet.

♦ Pricing and valuation fair... The first property, a 2-storey corner shop FYE Dec FY10 FY11 FY12
EPS chg (%) - - -
office with a built-up area of 7,030 sf was purchased for RM853.4k (RM121
Var to Cons (%) 4.1 10.5 7.5
psf), while the second property which is adjoined to the first, a 3-storey shop
office with a built-up area of 4,620 sf, was purchased for RM528k (RM114 PE Band Chart
psf). We believe the valuation is fair as both properties were valued by an
independent valuer, CB Richard Ellis at RM855k (RM121.6 psf) and RM530k
PER = 14x
(RM114.7 psf) respectively. PER = 12x
PER = 10x

♦ … although valuation is not the issue. We believe investors may not look
favourably towards the transaction as it is yet another related party
transaction (RPT), as the land was bought from a Johor Land subsidiary. In
addition, as mentioned above, we expect the two shopoffices will be used to
open a KFC and Pizza Hut outlet. Although we believe KFC will receive rental Relative Performance To FBM KLCI
payments from QSR for the usage of the shopoffice, it does not explain why
QSR cannot purchase the unit itself, given that they are separate shoplots.
KFC Holdings
We note that since April, KFC has a spent a total of RM20.8m buying units in
KPJ REIT, which is also a RPT, which may not bode well for investor
sentiment.
FBM KLCI
♦ Forecasts. No impact to our forecasts.

♦ 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. While we believe that KFCH will be subject to further

investor scrutiny due to its recent RPTs with JCorp and its subsidiaries, we
continue to like KFCH due to its stable SSS growth going forward, coupled Hoe Lee Leng
with its expansion in Malaysia, Singapore, Brunei and India. We maintain our (603) 92802239
fair value of RM12.97 (ex-all: RM3.24) based on unchanged PER target of hoe.lee.leng@rhb.com.my
14.5 FY12/11 EPS. Maintain Outperform.

Please read important disclosures at the end of this report.

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Table 2. Earnings Forecasts Table 3. 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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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
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have an interest in the securities mentioned by this report.

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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.

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