Thaibev announced that it has entered into an asset sale and purchase agreement to acquire more than 240 existing and number of developing KFC stores from Yum Restaurants International (Yum!) for THB11.3bn. We understand from Thaibev that the acquisition would only be concluded by year-end and the exact consideration is subjected to the actual number of existing and developing KFC stores to be acquired at closing. The acquisition would be funded through a combination of its internal generated cash flow and external borrowing.
Acquisition is in line with both parties’ objectives. KFC is the No 1 quick-service restaurant in Thailand with about 65% market share. We think the acquisition is in line with Thai Beverage’s (Thaibev) aim to diversify into the food business and reduce its percentage contribution from the alcohol business. It is also in Yum!’s plan to shrink the number of its directly-owned restaurants to move into an asset-light structure.
KFC has about 585 outlets in Thailand as at end-2016, of which 217 are operated by the Central Restaurants Group while Restaurant Development Co Ltd (RDCL) operates 130 outlets. Yum! had previously announced that it would open 800 stores in Thailand by 2020. According to a report by The Nation, the average investment per restaurant branch would be around THB15-30m. However, it is unclear to us at the moment whether Thaibev’s KFC expansion would be limited to certain cities or areas in Thailand. Management cited that the future expansion depended on Yum!’s direction.
We understand from management that the current KFC operations in Thailand are profitable. As at 31 Mar 2017, Thaibev’s net gearing ratio stood at a low of 0.31x. We think Thaibev has ample of room to gear up for this acquisition. We keep our forecasts and TP unchanged at the moment, Maintain BUY and a SOP-derived of TP SGD1.10 (15% upside). –RHB
Thaibev closed at: S$0.945