Bison Consolidated's mobile convenience store.
KUALA LUMPUR: CIMB Equities Research has upgraded Bison Consolidated Bhd from Reduce to Hold after its share price pulled back 15% since beginning September.
“As such, we upgrade our call from Reduce to Hold as we believe investors have priced in the potential earnings dilution and share price overhang from the share placement exercise,” it said.
CIMB Research did not make any changes to its earnings estimates and target price for Bison which operate the MyNews convenience stores.
“Our target price of RM2.28 is still based on a 50% weightage of 24 times CY18F P/E and 50% weightage price earnings growth (PEG) of one time. Key upside risks include better-than-expected sales of higher-margin products (i.e. fresh food) while key downside risks include stiffer competition in the convenience store space.
Bison’s 3QFY10/17 sales grew 25.5% year-on-year to RM81.7mil, while core net profit surged 52.3% year-on-year to RM6.2mil.
This led to cumulative 9MFY17 core net profit of RM18.7mil, within expectations at 75% of the research house and 77% of Bloomberg consensus full-year forecasts.
The 9MFY17 core net profit was boosted by better merchandise mix. The 9MFY17 turnover rose 24.1% year-on-year to RM237.2mil on the back of a higher store count (44 net new stores as at end-July) and improved advertising and promotion (A&P) income.
9MFY17 GP margin expanded 1.4 percentage points year-on-year to 37.1% as a result of a better merchandise mix (higher sales of fresh food products) and continuous consumer promotional activities.
This, alongside lower effective tax rates (-1.7 percentage points year-on-year), lifted core net profit 25.1% year-on-year.
On a sequential basis, Bison’s 3QFY17 revenue advanced 3.1% on-quarter to RM81.7mil in spite of the quarter being seasonally softer (mainly due to the fasting month of Ramadan, which fell in June this year).
This was mostly due to a higher number of stores as well as improved sales mix. Nonetheless, 3QFY17 core net profit fell 0.4% on-quarter to RM6.2m as a result of higher operating expenses (increased rental, staff and utilities costs).
Earlier this month, Bison proposed to undertake a private placement of up to 10% of its paid-up share capital (or 31m shares) to acquire a 4.4-acre plot of industrial land together with a single-storey warehouse in Kota Damansara, Selangor for RM50mil cash.
Assuming full subscription of the placement shares at an illustrative price of RM2.50 a share, Bison expects to raise total gross proceeds of RM77.5mil.
The proposed land acquisition will be 100% funded by the proceeds from the share placement and if funds fall short, the balance of the required capex will be funded via either internally generated funds and/or bank borrowings.
“Supposing full subscription for the share placement, the potential dilution to our FY18-19F EPS would be 9.1% due to the expansion of its share base to 341.1 million shares (from 310.1 million shares),” said CIMB Research.
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