Written by Financial Daily |
| Tuesday, 08 November 2011 10:29 |
(Nov 4, RM5.65)
Maintain outperform with revised target price of RM8.30 from RM7.22: Crowd favourite Tom Yum Crunch returns after seven years to a hot and spicy response, feeding into KFC’s mouth-watering same-store sales growth (SSSG) 0f 12% in October. Pizza Hut is playing catch-up in the delivery segment and the group is making further headway in India.
We raise our target price as we roll it forward, still pegged to 17.8 times forward price earnings ratio (PER), the average valuation of bigger peers. A further rise in average ticket prices, success in new markets and accelerated share buyback underpin our “outperform” call.
We are confident that Tom Yum Crunch will enable QSR to meet our FY11 SSSG target of 5% for both Pizza Hut and KFC. This will be the group’s best SSSG performance since FY09. We wasted no time in joining the queue at a KFC restaurant to welcome the return of Tom Yum Crunch.
During its debut in 2Q04, the wonder product helped KFC’s quarterly SSSG hit an unprecedented 44%. Just like the first round, the product did not disappoint and has generated a lot of buzz, contributing to KFC’s 12% SSSG in October. We applaud QSR’s latest initiative to drive Pizza Hut’s transactions across the delivery segment where it is lagging behind Domino’s. QSR has rolled out a new type of dough and a new distribution channel called Pizza Hut Delivery (PHD). PHD guarantees delivery within 30 minutes for 5km-radius catchment areas and offers free delivery and net prices to compete more effectively with Domino’s. We are encouraged by KFC India’s progress so far.
Monthly sales average RM350,000 to RM400,000 per outlet, substantially higher than the average of RM270,000 per outlet recorded by KFC Malaysia’s operations. A wide array of products that cater for vegetarians and non-vegetarians is bringing in the traffic and a staggering SSSG of 20%. Similar to the Malaysian operations, the average ticket price has been on the uptrend, hitting RM14 in 2Q11 compared with RM13.50 in 1Q11 and RM12 in 4Q10. — CIMB IB Research, Nov 4
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