Malaysia’s QSR puts $500m IPO on hold, hit by lofty valuations

Malaysia’s biggest fast-food operator, QSR Brands, has shelved plans for an initial public offering (IPO) that could have raised as much as $500 million as potential local investors balked at its valuations, sources familiar with the deal said. QSR, the sole KFC restaurants franchise operator in Malaysia, Singapore, Brunei and Cambodia, had marketed the IPO to funds as anchor shareholders in the last few weeks.

But they said the roughly 25 times forward earnings multiple being pitched was steep, said two of the sources, adding that sluggish markets also impacted the offering. There was investor demand for roughly 20 times valuation, the sources told Reuters said but QSR and its shareholders decided to defer the IPO.

Another source said the company’s weak first-quarter results following a price increase, had concerned some investors on its growth prospects and valuations.

“Investors have done their homework and crunched some numbers and don’t think the valuations are acceptable for them. The valuation gap is too wide,” said another source.

QSR had planned to launch its IPO this quarter and as early as next month, said the sources, who declined to be identified as news of the IPO being shelved is not public. After the Reuters story was published, QSR, which is backed by the investment arm of Malaysia’s Johor state and private equity firm CVC, said it had changed the timing of the IPO.

In a short statement, QSR said the company and its shareholders “have decided to re-time the IPO following discussions with its bankers,” but did not provide any details.

If it had gone ahead, QSR would have been the biggest IPO in Malaysia in about two years, coming on the back of a year-long drought in the primary market, where total fundraising plunged to $170 million in 2018, the lowest in 20 years. QSR’s IPO plans have seen repeated delays due to choppy markets and domestic political uncertainties, sources said. Last May, a senior official of Johor Corp, the investment arm of Johor, had said the state would like to see the IPO done no later than November 2018.

QSR also operates the Pizza Hut restaurants in Malaysia and Singapore. As investors remain wary of lofty price multiples, other Malaysian IPOs in the pipeline would need to cut their valuations if they stand a chance of launching their offerings, sources said. Malaysian stocks have underperformed Southeast Asian markets so far this year, with the benchmark index falling by 3 percent versus a rise of 8 percent in the Singapore market and a 5 percent increase in the Indonesian index.

Reuters reported last month that Malaysian poultry producer Leong Hup, majority-owned by the founding Lau family and also backed by PE firm Affinity Equity Partners, was in an advanced stage of going ahead with its IPO.

Leong Hup’s issue had been pending for more than a year.