Friday, Jun 29, 2001
KFC Holdings (Malaysia) Bhd’s (KFCH) rating of A+ID (single A plus, Islamic Debt) in respect of its RM300 million Islamic Notes Issuance Facility (INIF) reflects the Group’s above-average business and operation fundamentals and strong financials backed by a proven track record. A moderating factor to the rating is the risk profile of the food-related industry characterized by strong competition and vulnerability to economic factors.
Incorporated in 1980, KFCH is principally an investment holding company with its subsidiary companies primarily engaged in the fast food industry under the international trademark of KFC and Pizza Hut, poultry breeding and processing and a variety of food related business. Besides being the franchise holder of KFC for both Malaysia and Brunei and Pizza Hut for Malaysia, KFCH is also Malaysia’s only fully integrated food operator with its own feedmill, breeder farms, hatchery, broiler farm, poultry processing plants, sauce manufacturing plant, bakery, commissary and retail chains. All of KFC’s chicken requirements are supplied by the group’s 70%-owned listed subsidiary, Ayamas Food Corporation Bhd.
The quick service restaurant (QSR) industry is dynamic, highly competitive and vulnerable to adverse developments in the economy. The relatively fragmented poultry business, on the other hand, is characterized by, inter-alia, lack of pricing flexibility, exposure to either tight or overabundant grain supplies, vulnerability to weather and currency movements.
With 289 KFC and 83 Pizza Hut outlets as at 31 December 2000, KFCH is undisputedly the largest QSR operator (market share of approximately 60%) in the country. Its closest rival has an estimated 20% share of the market. KFCH’s early appearance in the local market; some 10 years before its closest rival; coupled with its strategies of backward integration and penetration in both urban and rural areas ahead of its competitors, enabled it to secure a firm foothold in the QSR market. The wide restaurant network built over the years has generated the critical mass in customer traffic necessary for the group to maintain its dominant market position.
Marketing is focussed on the family, particularly the children. KFCH is one of the major sponsors of children’s programme on television. The Group also consistently introduces new products, developed by its in-house research & development unit, to respond to changing consumer taste over time. High standards in marketing, finance and operations focusing on Cleanliness, Hospitality, Accuracy of orders, Maintenance, Products and Speed of service (“CHAMPS”) have earned it several prestigious awards over the years.
Over 90% of KFCH Group’s revenue (before inter-segment sales) is contributed by its QSR and integrated poultry businesses. Reflecting the effects of the economic recovery since 2H99 and improved consumer sentiment coupled with the Group’s focus on food related businesses, KFCH Group registered a substantial pre-tax profit of RM85.9 million in FY2000 on the back of RM997.1 million in revenue. Revenue is projected to grow by an average of 6% per annum over the term of the INIF facility. Cash flow protection measures are strong with operational cash coverage of interest and financing cost expected to return to its pre-crisis level of double digits. The semi-annual scheduled redemption of the primary notes under the various tranches beginning from the third year, rapidly reduces noteholders’ exposure over the last five years of the facility. Debt leverage is at a moderate level, with the pro-forma ratio below one time.
Included as part of the Group’s assets is Wisma KFC (formerly known as Wisma Idris); the legal title to which was transferred to Idris Hydraulic (M) Bhd, which subsequently charged it to a stockbroking company. This was effected despite the transaction under the original S&P agreement signed in 1996 between KFCH and Idris being incomplete. Idris has proposed a comprehensive debt restructuring exercise, which includes the retransfer of Wisma KFC’s title back to KFCH, to the CDRC. Todate, the matter has yet to be satisfactorily resolved. MARC will continue to monitor developments in this regard and assess the implications, if any, on the corporate debt rating.
Incorporated in 1980, KFCH is principally an investment holding company with its subsidiary companies primarily engaged in the fast food industry under the international trademark of KFC and Pizza Hut, poultry breeding and processing and a variety of food related business. Besides being the franchise holder of KFC for both Malaysia and Brunei and Pizza Hut for Malaysia, KFCH is also Malaysia’s only fully integrated food operator with its own feedmill, breeder farms, hatchery, broiler farm, poultry processing plants, sauce manufacturing plant, bakery, commissary and retail chains. All of KFC’s chicken requirements are supplied by the group’s 70%-owned listed subsidiary, Ayamas Food Corporation Bhd.
The quick service restaurant (QSR) industry is dynamic, highly competitive and vulnerable to adverse developments in the economy. The relatively fragmented poultry business, on the other hand, is characterized by, inter-alia, lack of pricing flexibility, exposure to either tight or overabundant grain supplies, vulnerability to weather and currency movements.
With 289 KFC and 83 Pizza Hut outlets as at 31 December 2000, KFCH is undisputedly the largest QSR operator (market share of approximately 60%) in the country. Its closest rival has an estimated 20% share of the market. KFCH’s early appearance in the local market; some 10 years before its closest rival; coupled with its strategies of backward integration and penetration in both urban and rural areas ahead of its competitors, enabled it to secure a firm foothold in the QSR market. The wide restaurant network built over the years has generated the critical mass in customer traffic necessary for the group to maintain its dominant market position.
Marketing is focussed on the family, particularly the children. KFCH is one of the major sponsors of children’s programme on television. The Group also consistently introduces new products, developed by its in-house research & development unit, to respond to changing consumer taste over time. High standards in marketing, finance and operations focusing on Cleanliness, Hospitality, Accuracy of orders, Maintenance, Products and Speed of service (“CHAMPS”) have earned it several prestigious awards over the years.
Over 90% of KFCH Group’s revenue (before inter-segment sales) is contributed by its QSR and integrated poultry businesses. Reflecting the effects of the economic recovery since 2H99 and improved consumer sentiment coupled with the Group’s focus on food related businesses, KFCH Group registered a substantial pre-tax profit of RM85.9 million in FY2000 on the back of RM997.1 million in revenue. Revenue is projected to grow by an average of 6% per annum over the term of the INIF facility. Cash flow protection measures are strong with operational cash coverage of interest and financing cost expected to return to its pre-crisis level of double digits. The semi-annual scheduled redemption of the primary notes under the various tranches beginning from the third year, rapidly reduces noteholders’ exposure over the last five years of the facility. Debt leverage is at a moderate level, with the pro-forma ratio below one time.
Included as part of the Group’s assets is Wisma KFC (formerly known as Wisma Idris); the legal title to which was transferred to Idris Hydraulic (M) Bhd, which subsequently charged it to a stockbroking company. This was effected despite the transaction under the original S&P agreement signed in 1996 between KFCH and Idris being incomplete. Idris has proposed a comprehensive debt restructuring exercise, which includes the retransfer of Wisma KFC’s title back to KFCH, to the CDRC. Todate, the matter has yet to be satisfactorily resolved. MARC will continue to monitor developments in this regard and assess the implications, if any, on the corporate debt rating.