KUALA LUMPUR (Feb 22): Shares in Berjaya Food Bhd (BFood) fell as much as 7.55% on Thursday to temporarily erase this month’s gain, as analysts warned of earnings pressure that may persist for months following weaker-than-expected second quarter results.

The counter declined to 53 sen, its lowest since Feb 2, before closing unchanged at 57 sen with 18.17 million shares exchanging hands more than four times its 65-day average of 4.22 million shares. Prior to February, the last time the counter touched its low of 53 sen was in March 2022.

Analysts said BFood’s earnings prospects remain difficult amid the ongoing consumer boycott of its key Starbucks franchise that contributes about 90% of its revenue. At least two analysts downgraded their recommendations for the stock to 'sell'.

BFood is expected to face “earnings pressure in the sequential quarters”, said Maybank Investment Bank, which has a 'sell' rating on the stock. “While the severity of boycotts may ease over time, consumer preferences may also shift permanently to competitors due to brand erosion.”

Starbucks, along with a few other global brands such as fast food chain McDonald’s, has been facing intense boycotts due to their support or perceived link to Israel amid the ongoing conflict in Gaza. BFood has lost some 25% of its market value on Bursa Malaysia, as Israel ramped up its deadly strikes in Palestine following the Hamas attack on Oct 7.

Out of six analysts covering BFood, four have 'sell' ratings and two still recommended 'buy', with a median 12-month target price (TP) of 52 sen, implying a potential 3.7% decline from the current share price.

“Sales will take time to go back to normal considering the still intense Israel-Gaza conflict that is unfortunately seeing no signs of abating,” said Hong Leong Investment Bank, which downgraded the stock to 'sell' from 'hold', and slashed its TP by 40% to 38 sen.

The research house also flagged that BFood will face tough times despite cost control efforts due to a foreign exchange drag, as 55% of the cost of beverages purchased from the principal Starbucks International is dominated in US dollars.

The ringgit has depreciated more than 4% against the greenback so far this year.

BFood reported on Wednesday a net loss of RM42.58 million for the second quarter ended Dec 31, 2023 (2QFY2024), bringing total loss for the cumulative six months to RM23.55 million, against a net profit of RM70.19 million for the same period a year earlier.

On its part, BFood said it expects improvement ahead. “The board believes that the operating performance will rebound and regain momentum, viewing the current situation as short-term and anticipating positive progress going forward,” the company said in an earlier exchange filing.