Fast Food Indonesia: Volatile Stock Performance in 2016
When on 11 March 2016 an Indonesian man died while participating in a chicken eating contest organized by O2 Accion in outlets of fast-food company Kentucky Fried Chicken (KFC) Indonesia, shares of Fast Food Indonesia came under pressure. Fast Food Indonesia, the franchise holder of the KFC brand in Indonesia, is one of the nation's leading fast food companies and operates the popular KFC chain in Southeast Asia's largest economy. However, in the first week of April shares of Fast Food Indonesia soared significantly on the back of better-than-expected revenue.
The financial report of Fast Food Indonesia - released in April - informed that the company's revenue grew 6.32 percent (y/y) to IDR 4.47 trillion (approx. USD $339 million) over full-year 2015 despite the overall economic growth of Indonesia still being in slowdown-mode, implying the undermining of people's purchasing power. However, the company's net profit fell 32 percent (y/y) to IDR 105 billion (approx. USD $8 million) over the same period. Hence, the company extended the slowing net profit streak that started in 2011.
During the year 2015 Fast Food Indonesia opened 15 new stores, 20 new in-line stores, seven new stores inside shopping malls, one new food court store and four KFC boxes (operated by the company's subsidiary Indoritel Makmur Internasional). This rather aggressive expansion strategy caused additional costs hence limiting net profit.
UOB Kay Hian Securities expects that Fast Food Indonesia will be able to raise the average selling price by 2.4 percent in 2016 amid the improving macroeconomic context (Indonesia's GDP growth is estimated to accelerate to 5.3 percent in 2016 and this would also imply an improvement of people's purchasing power). Meanwhile, same store sales growth accelerated by an average of 3.4 percent in the last quarter of 2015 (from a 0.3 percentage point growth in the preceding quarter). As such, UOB Kay Hian projects a 14.7 percentage point (y/y) growth in net profit for Fast Food Indonesia in 2016. Profit growth is also supported by the company's intention not to take up any new debt this year.
Although the aforementioned information gives a optimistic view of Fast Food Indonesia, several risks remain. Firstly, rising prices of chicken meat and cooking oil as well as higher wages and higher rental costs may curtail profit by raising production costs. Secondly, there exists fierce competition in Indonesia's fast food sector. Other companies, such as McDonald's, A&W, Burger King, and Wendy's, join the battle for market share and offer attractive discounts (this actually makes it difficult for Fast Food Indonesia to raise its average selling price as suggested by UOB Kay Hian).
UOB Kay Hian estimates that Fast Food Indonesia's price to earnings ratio (P/E ratio) will reach 17.5 times in 2016, a level that is significantly below the average P/E ratio in Indonesia's modern retail sector (which had an average of 26.2 times over the past five years), indicating the company may be undervalued.
So far in 2016 shares of Fast Food Indonesia have climbed 4.35 percent. However, today (12/04) its shares fell a massive 6.25 percent to IDR 1,200 per piece, extending the volatile behavior so far this year.
Future Projection Fast Food Indonesia's Financial Highlights:
| 2014 | 2015 | 2016F | 2017F | |
| Net Sales | 4,209 | 4,475 | 4,965 | 5,370 |
| EBITDA | 343 | 270 | 301 | 326 |
| Net Income (loss) |
156 | 105 | 121 | 142 |
| P/E Ratio (x) | 13.6 | 20.2 | 17.5 | 15.0 |
| Dividend Yield (%) |
5.6 | 5.6 | 3.9 | 4.6 |
| Net Margin (%) | 3.7 | 2.3 | 2.4 | 2.6 |
in billion IDR rupiah unless otherwise stated
Source: OUB Kay Hian (11/04/2016)