Bison Consolidated : Harnessing potential via aggressive expansion BUY

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Bison Consolidated : Harnessing potential via aggressive expansion         BUY

We initiate coverage on Bison Consolidated (BISON) with a BUY rating and fair value of RM1.71/ share. Our fair value is based on an FY17F PE of 24x, which is roughly 10% below 7-Eleven Malaysia Holdings’ current FY17F multiple of 27x. We like Bison for:- 1) its dominant position as the largest home-grown retail convenient store; 2) full autonomy to its brand name of myNews.com; 3) franchising opportunities; and 4) potential margin enhancement underpinned by sales of products from the group's food processing centre in Rawang. Bison is the largest home-grown retail convenience store player in Malaysia with an estimated market share 8.6% by the number of outlets and 6.6% by revenue as at Dec 2015. We expect Bison's revenue to grow by 21% in FY17F on the back of higher consumer spending on tobacco and F&B products and the opening of 70 new stores. About 30% of Bison's revenue is expected to come from the tobacco segment, while an additional 30% of sales are envisaged to come from the F&B segment. As at April 2016, there were 257 myNews.com outlets in Malaysia. An earnings kicker is anticipated to come in FY18F when an RM18mil food processing centre in Rawang is completed. This would allow Bison to sell fresh food and ready-to-eat meals in lunch boxes at its own stores. We forecast Bison's gross profit margin to improve from 33% in FY17F to 34% in FY18F.

Long-term profit growth is envisaged to be underpinned by the opening of MRT/LRT stations and franchising opportunities. MRT and LRT stations are expected to number 31 and 25, respectively, upon completion. Bison is bidding to open new stores at all MRT and LRT stations. For a new income stream, Bison has franchised out two MyNews.Com outlets at Myanmar's international airport. In the customer services segment, Bison is introducing money-changing services at its outlets. So far, approval has been granted for two of its outlets to carry out this service.

Its balance sheet is anticipated to remain healthy. Although Bison is expected to invest RM18mil in the Rawang food processing centre, we believe the group would not face any financing issue as net gearing was at a low 0.06x as at end-April 2016. Returns on equity are forecast to be high at 28% in FY16F and at 28.9% in FY17F, compared with 27.8% in FY15.

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