MK Restaurant Group

MK Restaurant Group Plc (MK) 

Above expectations

In its best quarterly number since its 2013 IPO, M posted a core profit of Bt650m for 4Q14, up by 20% YoY and 24% QoQ. The result beat our estimate by 10% and was 14% above the consensus; mainly due to higher-than-expected core margin (GM beat our assumption by 1.4% and the SG&A/sales ratio was 0.6% lower than modeled). Management announced a final DPS of Bt1.0 for 2H14, in line with our model, a 1.7% simple yield (XD on April 30; payment on May 21).  

Results highlights 

M resumed strong YoY and QoQ profit growth, driven by sales expansion and fatter margins—SSS turned around to growth in 4Q14. Sales expanded by 10% YoY and 3% QoQ to Bt3.8bn—TSSG of 8% YoY for MK Restaurant and 20% for Yayoi. SSSG was 1% for MK Restaurant and 7% YoY for Yayoi following consecutive quarters of SSS contractions. GM fattened by 0.6% YoY and 2.0% QoQ to 67.4% for 4Q14.  The SG&A/sales ratio was 49.5% in 4Q14, down by 1.6% YoY and 1.5% QoQ. The balance sheet reported a net-cash position at YE14.

Outlook 

We expect 1Q15 profit to rise YoY but decline slightly QoQ. SSS is expected to increase YoY for both MK Restaurant and Yayoi, due to the low base set by 1Q14 (political unrest in Bangkok). New outlet expansion will also drive YoY sales growth. GM should be sustained high, as the company has secured raw materials on forward contracts.

What’s changed?  

We conservatively maintain our FY15 profit growth forecast of 13% (11% sales growth and a 40 bps fatter NM). The provision for ESOP will dive 45% YoY to Bt160m in FY15, implying a lower SG&A/sales ratio. During FY15, M plans to open 60-65 new branches (30 MK Restaurants and 20 Yayoi), but we conservatively assume only 25 new MK Restaurant outlets and 20 Yayoi. 

Recommendation 

The FY14 earnings slump is behind us. The FY15 recovery will be driven by SSSG (we model for SSSG of 1.5% for MK Restaurant and 2.0% for Yayoi) against 4% SSS slippage for both MK Restaurant and Yayoi in FY14. The clean balance sheet accommodates scope for dividend payout rate upside (our assumption is an 85% dividend payout rate). For every 5% that the payout rate exceeds our assumption, the DPS would increase by Bt0.13 from our assumption (a 0.2% higher dividend yield than assumed in our model). M trades at an FY15 PER of 22.7x, below the global mean of 23.5x. Our BUY rating stands with a DCF-derived YE15 target price of Bt64 (WACC of 10.6% and a 2% terminal growth rate).