CIMB Research retains Add for Bison Consolidated, target price RM2.07

KUALA LUMPUR: CIMB Equities Research is retaining its Add recommendation for convenience store player Bison Consolidated with a target price of RM2.07, which is 11.2% above the last traded price of RM1.86.

It said on Tuesday Bison’s 1QFY17 core net profit was in line at 25% of its FY10/17F forecast and 26% of Bloomberg consensus estimates.

“The 1QFY17 sales and net profit growth on-year were mainly driven by higher new store count, improvement in merchandise mix and annual sales rebate for merchandise.

“Our FY17-19F EPS forecasts, Add call and end-2017 target price of RM2.07 are unchanged, still based on price-to-earnings growth (PEG) and P/E valuation methodologies,” it said.

CIMB Research said the key downside risks are a significant slowdown in consumer spending and any substantial spike in operating costs.

Bison’s 1QFY17 revenue rose 23.5% on-year to RM76.2mil, with core net profit of RM6.4mil.

It said the 1Q core net profit met expectations at 25% of its full-year forecast and 26% of consensus. 

The group’s 1QFY17 revenue growth was mainly driven by the higher number of new stores, improvement in merchandise mix and consumer promotional activities. 

The 1QFY17 gross margin narrowed by 2% pts yoy to 36% but we note that this was mainly due to a one-off gain from its existing stock of tobacco (following the cigarette retail price hike in Nov 2015). Despite higher operating expenses (staff, rental and utilities costs), Bison chalked up net profit growth of 10.2% on-year to RM6.4mil.

CIMB Research said Bison’s 1QFY17 turnover improved 5.2% on-quarter as a result of the increase in the number of stores (+15 net new stores) and a better product mix. 

An improvement in the merchandise mix (higher sales of fresh food products) and consumer promotional activities helped to drive up pretax margin by 2.6 percentage points on-quarter, which offset the higher operating expenses. This led to stronger net profit growth of 47.7% on-quarter.

“Recall that in Jul 2016, the group acquired a 1.4-acre piece of land in Rawang, Selangor for the purpose of building a food processing facility. We understand that its food facility is still on the drawing board but management reassures us that it is on track for completion by 2HFY18F. 

“Meanwhile, the sub-distribution centre intended for its Johor outlets is currently undergoing relevant upgrades (installation of IT systems, factory extension) and should be ready to commence operations by end-1HFY17F.

“While the expiry of the Price Control and Anti-Profiteering Act 2014 would give Bison more leeway to increase prices for certain products, we understand that the group only intends to make minimal price adjustments, as prices for the convenience store subsector are usually benchmarked against competitors. That said, we have imputed flat net margin growth for Bison in FY17F.

“We continue to advocate Add on Bison, with no changes to our end-2017 target price of RM2.07, based on a 50% weighting to target CY18 P/E multiple of 20 times (10% discount to regional peer average) and 50% weighting to mean PEG of 1.0 time. 

“We continue to like the company for its solid three-year net profit CAGR of 22.5%, driven by healthy store expansion plans and potentially wider margins as a result of higher sales contribution from its fresh food segment,” said CIMB Research.

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