As a part of its global refranchising initiative,
Burger King Worldwide
) recently divested 41 company-owned restaurants in Singapore to
Rancak Selera Sdn Bhd - a part of Ekuiti Nasional Berhad's
portfolio of companies and the present franchisee of Burger King in
Malaysia. The financial terms of the deal were not disclosed.
Per the transaction, Rancak Selera acquired the full stake in
Burger King Singapore Pte Ltd. It also currently owns 74.1% equity
in the Malaysian franchisee for Burger King. Rancak Selera will act
as Burger King's master franchisee and developer to boost the
brand's presence in Singapore and Malaysia over the next 20 years.
Rancak Selera shares a long standing relationship with Burger King
since its launch in Malaysia in 1997. Since then, Rancak Selera has
successfully enhanced the brand's presence across the country to as
many as 32 outlets.
Armed with the strong know-how of local food habits, the franchisee
is also hopeful that its collaboration with a global brand like
Burger King would help spread its menu offering successfully across
Malaysia and Singapore.
The latest deal affirms Florida-based Burger King management's
intent to make Singapore and Malaysia among the prime markets for
international expansion considering its emergent economy. According
to a global market research company Euromonitor, Singapore recorded
gross domestic product (GDP) growth of 5% in 2011 on the top of a
robust GDP growth of 14% in 2010, leading to higher consumer
Increasing disposable income has enabled Singaporeans to spend big
on branded food items. It is being witnessed that the young as well
as the emigrant population in Singapore are more inclined towards
western fast-food chains. We believe that Burger King seeks to
fully capitalize on this trend.
Rancak Selera also commented that Singapore's Food & Beverage
(F&B) market currently hovers around SGD9.01 billion (RM22.6
billion) and it will remain a flourishing category in Singapore
over the next couple of years.
In order to attain a 100% franchised model, Burger King remains
focused on the strategy of re-franchising its company-owned units.
We believe re-franchising a large chunk of its system will provide
another opportunity for margin expansion. Also, the company's
effort to reduce its capital requirements will ensure steady free
cash flow generation. Presently, nearly 94% of its restaurants are
owned and operated by independent franchisees.
However, the market is not free from competition. Burger King
will likely face intense competition in that region from its peers
Yum! Brands Inc.
). McDonald's is a prominent name in Malaysia and Singapore with a
wider scale of operation.
Furthermore, a sluggish macro environment acts as another
short-term deterrent. According to the Monetary Authority of
Singapore, the GDP growth is expected to be slow to 1-3% in
Burger King currently retains a Zacks #3 Rank, which translates
into a short-term 'Hold' rating. We maintain our long-term
"Neutral" recommendation on the stock.
BURGER KING WWD (BKW): Free Stock Analysis
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