Here’s why Fast Food Indonesia will continue to dominate the Indonesian food scene
Despite the harsh blowback after a diner’s death.
Following the death of an Indonesian man participating in an eating contest in a KFC outlet last March, Fast Food Indonesia’s (FAST) shares came under pressure.
However, the sole franchise holder of the KFC brand in Indonesia seems to have bounced back already.
According to a report by UOB Kay Hian (UOBKH), the consumer foodservice in Indonesia will still continue to see accelerated outlet expansion, as well as increased transaction volumes. This bodes well for FAST, as it is the biggest quick service restaurant operator in the country. In fact, FAST is even expected to deliver a 20.7% EPS growth in 2016.
“Indonesian consumers, especially those in the urban segment, who prefer to dine out during weekends, will continue to help in the expansion of consumer foodservice. More women joining the workforce will also support the consumer foodservice segment,” notes UOBKH.
The fast food services is seen to enjoy CAGR growth of 6.3% in 2014 to 2018 as busy and hectic lifestyles push consumers to opt for the convenience of eating out.
Additionally, FAST will benefit from the robust brand recognition of the KFC brand in the Indonesian market. The country’s competitive fast food services market makes profitability tough for new entrants as they have to rival the low pricing from the market leader, tailor food to Indonesians’ palate, and have a certain number of stores to enjoy economies of scale.
Moreover, UOBKH expects FAST to drum up sizeable earnings growth as it ramps up the “larger-and-standalone store format programme.” This should provide steady earnings thanks to cost efficiency from economies of scale, which in turn leads to better margins in the next few years.
“From a 2% net margin in 2015, we expect net margins to stabilise at 2.2% starting 2017, significantly below the historical margins of 3.6-7.4%,” reports UOBKH.