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Saturday, November 20, 2010

Some comments on Halim Saad's offer to buy QSR

News: Halim Saad, partner offer to buy QSR


Just read the news. Valuation for the take-over could be just two times the book value??!!! This means that the takeover price could be at RM5.20?? Why would price-to-book value be used for this takeover? The valuation is way too low. QSR is a cash cow, bringing in more than RM100mil profits every year. QSR is a market leader in the restaurant industry, super resilient and consistent earnings growth, somewhat similar to F&B companies like F&N which is trading at PER of 17-18x. Therefore, PER should be used to value QSR. PER of 17-18x would value QSR at more than RM6.50. We should not discount the fact that QSR owns 51.2% of KFC and its stake in KFC is worth RM1.7bil already, similar to the whole QSR's market cap. This implies that QSR's Pizza Hut and Ayamas businesses are totally free!!!

In addition, I think Johor Corp will not accept the offer if the takeover price is lower than current market price. It is extremely hard to own such a company like QSR. No matter what, Johor Corp will be at a loss to let go of QSR unless the takeover price is very high, let's say RM7.00.

Therefore, using P/BV of 2x or takeover price of RM5.20 as reported in the news is purely ridiculous.

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