KFC Holdings (M) Bhd
(March 9, not traded)
Maintain neutral at RM8.03, target price at RM8.30: Recently, we visited KFCH’s newest chicken processing plant in Bandar Tenggara, Johor. This new plant has the capacity to process 40,000 tonnes of chicken per day.

We see continuing improvement from its integrated poultry segment with new facilities such as the coning system, which enhances productivity as well as the tenderness of chicken meat.

We note the innovations at KFCH’s operations as well as its plans to replicate this innovation across its other plants. As we remain confident on its operations, we are maintaining our earnings forecasts for FY10 and FY11.

Our target price remains unchanged at RM8.30, based on 11.5 times price-earning ratio (PER) over FY10 earnings per share EPS).

The Bandar Tenggara plant is the only plant that is equipped with the latest innovation in slaughtering chicken to ensure quality meat.

Currently, KFCH has three chicken processing plants in Malaysia which slaughter 3.3 million chickens per month for local demand. The new processing plant in Bandar Tenggara has been operational since December 2008.

KFCH has invested RM30 million in the plant, which has the capacity to process 40,000 tonnes of chicken per day and has boosted its existing capacity by at least 40%.

The remaining two plants are in Port Klang, with capacity of 80,000 tonnes per day — which is also KFCH’s largest plant — and in Bukit Mertajam, with 25,000 tonnes per day.  Its Port Klang plant will convert to the coning system and process 6,000 birds per day by year-end, with a capital expenditure of around RM250,000 to RM280,000, including plant extension.

Apart from its chicken processing plant, KFCH’s feedmill plant also plays a major role in its integrated poultry division. This division contributes about 20% of the integrated poultry revenue.

It has the capacity for 40,000 tonnes of feedmill per annum. However, its earnings are usually volatile given that it is subject to price changes in raw materials such as corn and soybean meal.

We believe this division’s margins may continue to be tight in the coming months given the lower crop yield from low moisture in Argentine soil for crop growing. — OSK Research, March 9


This article appeared in The Edge Financial Daily, March 10, 2010.