KFC lays the golden eggs


  • Business
  • Friday, 10 Jan 2003

By B.K. Sidhu 

KENTUCKY Fried Chicken restaurants have been operating in Malaysia for 30 years and have served millions of finger lickin’ good meals to many diners. 

And as a corporate entity, KFC Holdings (Malaysia) Bhd (KFCH) has had its fair share of controversies and boardroom tussles. These have made headlines in the financial press through the years. 

From its first restaurant in Jalan Tuanku Abdul Rahman, Kuala Lumpur, in 1973, KFCH has expanded to over 320 outlets in the country. It had also managed to grab the Pizza Hut franchise. 

It has also expanded beyond chicken and pizza meals to cakes and pastries, via Bakers Street, chicken meat via Ayamas, gourmet food via TasteBuds restaurants, and for coffee addicts, Seattle's Best Coffee, is a happening place to hang out. 

From a one-product company, KFCH has evolved into a huge food chain, which has been profitable for the past 13 years – save 1997 and 1998 when the Asian financial crisis hit. 

KFCH began life in 1973 as Poon Guan Holdings Sdn Bhd, set up by Loo Cheng Ghee, controlling both the Malaysian and Singapore operations. Loo sold his stake in KFCH to Innovest Bhd in the early 1990s and since then the fast-food chain has changed hands many times. It was also embroiled in boardroom tussles that ended up in the court. 

In the 1990s, Datuk Ishak Ismail was the protagonist in KFCH until the Asian financial crisis of 1997/98 when Punca Ibrat Sdn Bhd, a company controlled by Ishak, defaulted on a loan repayment and allowed CI Holdings Bhd to emerge as a major shareholder with 29.9%. 

But the past two years CI Holdings had failed to get Yum! Brands International – the global KFC and Pizza Hut franchisor – to recognise it as a major shareholder. 

A few days before Christmas, the KFCH management shocked the marketplace with its announcement of a complex reorganisation of the group with the aim of locking in the Pizza Hut and KFC franchises.The revamp entails a new holding company owning 29.9% stake in KFCH and 100% of Pizza Hut Sdn Bhd, the local franchise of the pizza business. It will also see KFCH selling Pizza Hut for RM115mil and buying Ayamas Food Corp Bhd for RM260mil. 

Some shareholders have criticised the deal but the KFCH management maintains that it is the best “rescue'' plan and assured there would be no more shareholder scuffles in the future. 

KFCH would also hive off or close down its unrelated non-core businesses such as money lending, Seattle Best Coffee, soyabean milk operations, and chilli plantation. 

Over the years, KFCH has paid good dividends, averaging 8% per year, and its profits have been stable, too, except for the two years in 1997 and 1998. 

KFC outlets are highly visible and in all probability most people would have dined at the restaurants at least once. This has made it a good buy and perhaps a quality consumer stock on the KLSE. Early in 1990 it was trading at RM2.61. 

Over the last 13 years, KFCH has undertaken a number of corporate exercises. On Dec 1, 1990, it made a one-for-four bonus issue and three-for-four rights issue at RM1.50 a share. In 1996 it announced a two-for-three bonus issue. 

A year later it made a one-for-five warrants issue at 62.45 sen. The period for the conversion of the warrants into shares, priced at RM9.50, has since been extended to 2006. 

The company's share capital has swelled from 88 million shares of RM1 each at January 1990 to 194.2 million now. 

For an investor who had bought one lot of KFCH shares at RM2.61 each in January 1990, his base would have risen to 3.333 lots with the bonus and rights issues. His investment would be RM3,735 (RM2,610 and rights portion RM1,125). 

As at Dec 31, 2002, the share price of KFCH closed at RM3.50. An investor who had held on to his KFCH shares the past 13 years would be celebrating a capital gain of RM11,665. 

But that is not all. The investor would have also earned RM2,506 in dividends during the period, increasing his net gain to RM14,171. Less cost, he would have netted RM10,436. 

Going forward, those holding on to KFCH shares know that this fast-food chain is well managed, and people just love their chicken. So long as the chicken remains tasty and the company keeps delivering the returns in terms of profits and dividends, many would still be loyal to this stock.

 

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