Bison Consolidated's mobile convenience store.
KUALA LUMPUR: CIMB Equities Research has downgraded convenience store chain operator Bison Consolidated to Hold from Add due to the limited upside potential.
It said on Thursday it was keeping its earnings forecasts but attached a higher target price-to-earnings (P/E) multiple of 24 times in line with its current CY18 regional peer average.
“Our end-2017 target price is lifted to RM2.28 (50% weighting to target CY18 P/E of 24 times; 50% weighting to mean price-to-earnings growth of 1.0 times).
“However, we downgrade to Hold as we believe the group’s growth prospects have been priced in,” it said.
The research house said the key upside risks include better-than-expected sales of higher-margin products (i.e. fresh food) while key downside risks include intensified competition in the convenience store space.
Bison’s 2QFY10/17 turnover increased 23.3% on-year to RM79.3mil, while core net profit grew 20.4% on-year to RM6.2mil.
This brought 1HFY17 core net profit to RM12.6mil, which came in within the research house and consensus expectations at 51% and 53% of the respective full-year estimates.
An interim dividend of two sen was also declared during the quarter (vs. 2Q16’s dividend per share: 1.5 sen), which translates into a payout ratio of 49%.
CIMB Research said the group reported 1HFY10/17 revenue of RM155.5mil, ticking up 23.4% on-year, thanks to a higher number of stores added to its portfolio (+31 net new stores as at April 2017) as well as a higher contribution from its advertising and promotion (A&P) income.
Meanwhile, an improved sales mix (increased fresh food product sales) and consumer promotional activities boosted gross profit margin by 0.6 percentage points on-year to 37%. Taken together with lower effective tax rates, Bison’s core net profit advanced 15% on-year to RM12.6mil.
“Compared to 2Q16, revenue grew by 23.3% on-year on the back of the opening of new stores as well as a better sales mix.
This offset the higher selling and distribution expenses due to its store expansion (i.e. higher rental, staff and utilities costs), resulting in higher core net profit growth on-year (+20.4% on-year),” it said.
Bison’s 2Q17 gross profit margin also ticked up 3.5% percentage points on-year to 38% as a result of improved sales volume of its high-margined products as well as ongoing promotional activities conducted alongside its suppliers.
“As at April 2017, the group has opened a total of 31 stores, bringing its total number of stores to 325, and it is on track to meet its target of opening 70 stores a year by end FY18F,” it said.
The group is present in most states in Malaysia, with approximately 80% of its stores in the Klang Valley and Selangor and the majority located in shopping malls and high-foot traffic retail locations.
CIMB Research pointed out Bison’s new food processing facility was on track and management is confident that it will be operational by end-FY18.
“With this, Bison would be able to distribute its own-brand fresh food products line (commands more than 50% gross profit margin), which we believe could help to drive up profitability,” it said. Fresh food products make up c.8%-10% of the group’s total revenue.
Limited time offer:
Just RM5 per month.
