Bison Consolidated : Bison gives you wings too BUY

STOCK FOCUS OF THE DAY

Bison Consolidated : Bison gives you wings too BUY

We maintain our BUY rating on Bison Consolidated (Bison) and fair value of RM2.24/share. Our valuations are pegged to an unchanged PE of 27x FY17F earnings, which is in line with 7-Eleven Malaysia (7E Malaysia). While 7E Malaysia is approximately 7x larger, Bison offers a superior 3-year earnings CAGR of 27% over FY16-19F (vs. 7E Malaysia: 16.4%). Bison reported a 1QFY17 core net profit of RM6.4mil (QoQ: 47.7%, YoY: 10.2%). Earnings were in line with both our and consensus estimates at 29% and 27% respectively. Top-line growth of 24% YoY was driven by Bison’s sustained store expansion of 26% more stores. It brought the store count to 310 stores as of end-1QFY17 (vs 1QFY16: 246). Despite Bison recognising a greater mix of margin enhancing complimentary income, gross profit margin for the quarter contracted 2.1ppts to 36%. This was attributed to a one-off gain in relation to revalued tobacco stock post-excise hike inflated margins in the preceding comparable quarter.

Our expectations for Bison going forward include: i) For the remaining quarters to bring total store expansion to 70 by end-FY17 despite Bison expanding only by 7 stores in 1QFY17. ii) The greater proportion of maturing stores over FY17 is expected to supplement marginal shortfall in 1QFY17 margins. By our estimates, 12% of stores are expected to mature over FY17 against the 7% in FY16. We understand for fully matured stores to generate 30% to 50% in more revenue against year old stores. We leave our earnings unchanged as earnings were within our estimates. Key risks to Bison include: 1) excise duty hike to cigarettes, which lowers foot traffic and related spillover spending; 2) delay in food-processing centre set-up; and 3) foreign labour supply.

Others :

Prolexus : Expansion cloaks near-term earnings miss       BUY

QUICK TAKE

Top Glove : Enters into JV with Fimatec                 HOLD

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ECONOMIC HIGHLIGHT

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