The Nation



MK Restaurant Group

Share price support from dividend

MK Restaurant Group Plc

Investment thesis

We assume dividend yields of 3.0percent for FY13 and 3.5percent for FY14 (above the global peer average of 2.4%), which would support the share price. Our model points to ROE of 19% this year (the global mean is 17%). We have a BUY call, premised on M's clean balance sheet. Our YE14 target price declines to Bt56 (from Bt58) to reflect our new forecast, pegged to a DCF framework (10.9% WACC and a 1% terminal growth rate).

4Q13 net profit expected to rise YoY, fall QoQ

Our model indicates a net profit of Bt463m for 4Q13, up 8% YoY but down 13% QoQ (slightly below our earlier forecast of Bt488m). The expected YoY growth is due to the low 4Q12 base and a lower SG&A/sales expenses ratio (from 52.5% in 4Q12 to 51.0%). The assumed QoQ decline is due to higher marketing expenses, which failed to push sales significantly. GM should have been sustained high at 67.1%. Sales are estimated at Bt3.6bn, up by 8% YoY and 4% QoQ.

Outlet expansion drove 4Q13 sales growth. The number of MK Restaurant branches rose from 354 at YE12 to 381 at YE13 (seven opened in 4Q13); the number of Yayoi branches rose from 91 at YE12 to 113 (seven opened in 4Q13). In 4Q13, MK's SSS slipped 6% YoY and Yayoi's SSS dipped 2% YoY.

Earnings forecast cuts

We have trimmed our model by 1percent for FY13 to fine-tune for our current 4Q13 preview and by 6percent for FY14 to reflect weak consumption spending. January saw only single-digit YoY sales growth. SSS is yet to recover for MK (down 6% YoY in Jan), but Yayoi saw double-digit SSSG. We assume FY14 TSSG of 9% (below M's target of 15%). The firm plans to open 55 outlets in FY14 (30 MK and 25 Yayoi), but we assume 49 new branches (27 MK and 22 Yayoi).

Management guides for a sustained absolute dividend payment

M has a big Bt9bn net-cash position, so could deliver a payout rate of 70-80% (75% in our FY13 model and 80percent for FY14). An interim dividend payout for 1H14 operations is likely. The firm guides for a secured absolute DPS every year plus some extra when earnings growth justify a higher dividend.

Bt1-2bn allocated for a new acquisition

Management plans to acquire a new brand for both domestic and regional rollout (it may be either a standalone operation or a JV). The acquisition target is a restaurant chain. For the deal to be closed, M requires that it be the majority shareholder. The firm guides for a purchase price in the range of Bt1-2bn (depending on whether it is a JV or a 100% takeover). The acquisition would enable faster long-term earnings growth.

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