Bison ups the ante

  • Business
  • Saturday, 07 Oct 2017

Dang: We must not be complacent, and instead be ever ready to walk in this challenge. I am a firm believer that competition brings innovation.

Company brings in two Japanese partners for ready-to-eat segment

Bison Consolidated Bhd is upping the ante in its strategies with its latest move to bring in two Japanese parties to enhance its ready-to-eat food and bakery segment, which will see a more high-margin product mix in stores.

Analysts are upbeat on the convenience store operator’s long-term prospects, with efforts channelled towards growing its profitability via the fresh food segment.

In a research report last week, Maybank Investment Bank Research (Maybank IB) said it was long-term positive on the recent tie-ups, given the experience of the Japanese partners in the ready-to-eat food and bakery business.

“This provides knowledge transfer to Bison, which is critical in moving up the value chain, as gross profit margins for fresh food is much higher at more than 50% as compared to other offerings such as tobacco, which only has less than a 10% gross profit margin.

“While we estimate an additional depreciation cost of about RM1mil per annum beginning financial year 2019 (FY19), we believe this could be offset by higher sales or generally better food and beverage margins,” said Maybank IB.

While CIMB Research is positive on Bison’s current developments, the research house opined that Bison’s share price fairly reflects its fundamentals and has priced in its future growth prospects.

Concurrently, the operator of the chain of convenience stores is also on track to growing its number of outlets by 70 stores for FY17 ending Oct 31, and has revised its FY18 target of new stores upward to 90 outlets.

As of September 2017, Bison had a total of 367 stores.

The key downside risks for Bison would be lower-than-expected opening of stores, higher-than-expected operating expenses, and intensified competition in the convenience store space.

Bison executive director and CEO Dang Tai Luk, better known as Luk, said Bison was not fazed by competition, being ‘born into competition’.

“We must not be complacent, and instead be ever ready to walk in this challenge.

“I am a firm believer that competition brings innovation,” he said.

Bison closed 1.3% lower at RM2.35 on Friday, traded on a volume of 560,700 shares.

Since its listing on March 29, 2016, Bison’s share price has grown by 60%.

It has a market capitalisation of RM728.7mil and a price-earnings ratio of 35.82 times.

Its closest competitor, 7-ELEVEN MALAYSIA HOLDINGS BHD, has a market cap of RM1.74bil and a price earnings (PE) ratio of 44.88 times.

Luk expects the ready-to-eat food segment to contribute 15% of group revenue in FY19, as the new food products produced by the joint-venture (JV) companies will be rolled out in the first quarter of FY19.

In FY17, Bison saw the revenue contribution from its ready-to-eat business grow from 8% to 11%.

He envisages that the bakery and ready-to-eat food market growth has huge potential in Malaysia, and is capable of emulating the same market expansion of convenience stores’ bakery and ready-to-eat product offerings in Japan or Taiwan.

“In order to provide Malaysians with food of Japanese quality standard, we must bring in Japanese experts to produce it.

“Our partners, who are food experts, will help us improve the under-developed and under-served ready-to-eat market in the country,” said Luk.

Bison has been positioning itself to capture the ready-to-eat segment since acquiring bakery product supplier Otaru Fine Food Sdn Bhd for RM200,000 back in July 2016.

The initial plan for Otaru Fine Food, now known as Mynews Food Sdn Bhd, was to establish a food processing centre and cross dock.

Bison has since revised its food processing facility plan to include a fully integrated ready-to-eat food production plant and a large scale bakery.

Bison acquired a 60,000-sq-ft freehold vacant land in Rawang Industrial Park, Selangor for RM6.75mil in 2016.

A five-level factory with a built-up area of more than 130,000 sq ft will now be constructed on that piece of land.

It is located 500 metres from Bison’s current distribution centre, which augurs well for management and logistics efficiencies.

The 100% halal manufacturing facility is targeted to supply 150 stores in 2019, and will have a full supply capacity of up to 600 stores.

Recall that last Thursday, Bison entered into two separate JV agreements through its entity Mynews Food, with ready-to-eat producer Gourmet Kineya Co Ltd (GK) and specialised bakery Ryoyu Baking Co Ltd (Ryoyupan).

GK, a Tokyo Stock Exchange-listed company, is one of the largest in-flight meal caterers in Japan, supplying to 38 airlines, and also owns a restaurant chain operation with more than 400 stores in and out of Japan.

On the other hand, Ryoyupan is one of the top-five players in the Japanese bakery industry and the biggest on Kyushu Island.

In the first agreement, Bison and GK Asia Sdn Bhd, made up of Inspire Group and GK, will incorporate a new JV company - MyNEWS Kineya Sdn Bhd - to produce ready-to-eat food, which will have a paid-up share capital of RM50mil.

In the second agreement, meanwhile, Bison and MRA Bakery Sdn Bhd, which comprises Ryoyupan, Inspire Group and Marubishi Group, will establish JV company MyNEWS Ryoyupan Sdn Bhd to produce bakery products, with a paid-up share capital of RM20mil.

The Marubishi Group is the third-largest bakery ingredient and equipment supplier in Japan, while Inspire Group is a Tokyo-based business development and investment company which supports Japanese companies that are expanding in Asean or Islamic markets.

Bison will own a 51% equity interest in both companies, which translates to an investment cost totalling RM35.7mil.

The investment cost will be funded through a combination of proceeds to be raised from internally generated funds and the proposed private placement announced on Aug 30.

Bison has earmarked RM20.4mil from the private placement proceeds for the JVs, while the remaining RM15.3mil will be financed by internally generated funds.

Maybank IB guides that there could be an earnings per share (EPS) dilution in the near term, due to the private placement of up to 31.1 million new shares to raise up to RM77mil. “We estimate a manageable 5% dilution to Bison’s FY18 EPS, with expectations that higher sales would kick in thereafter, once the facility commences commercial production,” said Maybank IB.

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