Friday, July 23, 2010

Nomura Writes And QSR Flies...

Saw the following article on the EdgeMalaysia: QSR runs up for 4th day after Nomura report Nomura... hmm..... it was just last Friday I posted Nomura Securities Declares That The Worst Is Over For Genting Malaysia.

So naturally I was interested to read what the article has to say. :)

Before I read the article, I snap a shot of the stock chart.

Huhu!!!! So hot the stock... and Nomura ONLY starts to initiate coverage?? :P

Buy higher, sell more higher?

Anyway, I still decided to read what the article has to say...

  • KUALA LUMPUR: QSR Brands Bhd’s share price continued its fourth consecutive trading day of gains, adding 25 sen or 5.88% to RM4.50 at close yesterday, following a favourable report by Nomura Securities.

    Nomura Research initiated coverage on the stock with a buy call and a 12-month target price of RM5.47. A total of 1.7 million shares changed hands yesterday.

    “Against a backdrop of favourable demographics, QSR is the most diversified KFC franchise owner in the region, with 830 KFC and Pizza Hut stores across Asean and India.

    “We see 12% to 40% earnings growth over the next three years, driven by a young and high poultry-consuming population. Strong catalysts also exist via its start-up India presence,” said Nomura in its report.

    The research house said QSR, with its single-digit price-earnings ratio (PE) for the year ending Dec 31, 2011 (FY11), compared favourably to the stock’s historical average and versus the company’s peers....


Let me get their (Nomura's) reasoning correct.

  1. QSR has favourable demographics.
  2. Diversified KFC franchise owner in the region, with 830 KFC and Pizza Hut stores across Asean and India
  3. 12% to 40% earnings growth..
  4. Trading at single digit PE.


Here's QSR compiled earnings.

ttm stands for trailing twelve months.

Now the table is complicated. (ps: the above table is edited because the earlier table had mistakes!)

As can be clearly seen, QSR recorded a tremendous jump in its earnings revenue because in FY 2009, KFCH became a subsidiary effective Jan 09.

As can be clearly seen, it's like looking at two different companies. Without KFC's revenue and earnings, QSR earnings was much, much smaller but the company was very much profitable (ie the margins are much better

However, after incorporating KFC's numbers, the earnings were bigger but the margins are much smaller.

Here is my compiled table showing QSR earnings after KFC has been included as a subsidiary.


It's looking impressive but as impressive as it is, there's only 5 quarterly earnings.

The ttm numbers is indicating a current profit of around 94 million.

Now Nomura is 'predicting' a 12% to 40% earnings growth.

Err... perhaps the news article is quoting the research report wrongly but a 12% to 40% earnings growth type of recommendation is simply baffling for me.

I do hope that perhaps it's simply a typo.

Anyway, the article continues....

  • It estimates that at 8.5 times FY11 earnings, QSR was trading both at a 43% discount to its four-year mean and below its peers’ PEs which were in the teens.

    At the current share price, the market seemed to have left out the value of Pizza Hut and KFC Cambodia, said Nomura.

    “The market appears to value QSR’s 50.3% stake in listed subsidiary KFC Holdings Bhd at more than 100% of QSR’s share price, implying a complete discount on the steadily performing Pizza Hut and KFC Cambodia operations (which are unlisted but directly under QSR), which together contribute about 20% to earnings before interest and tax,” it said.

    Nomura’s target price implies a target multiple of 12 times.

    Catalysts for the regional KFC and Pizza Hut franchise owner included continued store openings in Malaysia and India, sustained positive consumer sentiment, and confidence in robust economic recoveries across the region, it added.

    At the same time, plans for further expansion into broiler farming by the group would complete the missing link in QSR’s ownership of its supply chain. The plans would potentially enable up to 20% to 30% of its chicken needs to be supplied internally reducing dependence on contract farmers, Nomura Research said.

    It recommends investors gain exposure to the business via QSR instead of KFCH. On a year-to-date basis, QSR was more undervalued having outperformed the FBM KLCI by 22% while KFC had outperformed by 53%, it said.

    A KL-based chartist told The Edge Financial Daily that the run-up in QSR was in line with rotational play on the consumer sector, on the recovering regional economy.

    QSR had on Wednesday announced the acquisition of another 1.95 million units of KPJ REIT for RM2.01 million. The chartist said this implied that the company had spare cash to purchase investment securities.

    KFCH’s proposal of a share split of one RM1 share into two 50 sen shares followed by a one-for-one bonus issue, was expected to indirectly boost QSR. A free warrant issue of one-for-25 shares would also be made after the share split and bonus issue.

    The proposal was announced on June 22 and is pending approval of shareholders, Bursa Securities and other relevant authorities. “KFC’s shares are expected to outperform prior to the exercise and QSR as a major shareholder would also benefit,” said the chartist.

    KFC shares slipped four sen or 0.36% to close at RM11.12 yesterday.

    This article appeared in The Edge Financial Daily, July 23, 2010.

Now CIMB Research had a research out on QSR in May. Here's CIMB's estimates...

And CIMB valued QSR..

  • We maintain our earnings forecasts and target price of RM5.60, pegged to an unchanged 16x forward P/E, which factors in a 10% discount to the average valuation of bigger F&B producers.

Ah... CIMB is more positive on QSR eh? :D

But CIMB 'outperform' call was made in May 2010. QSR back then was only rm3.38.


Doesn't this put a whole new perspective on the EdgeMalaysia article that QSR runs up for 4th day after Nomura report ??



ps: QSR last traded.. 4.50.

ps: I am NOT a sotong, so naturally I have no idea if this stock can help you lose money or not.