Investment Highlights

• We downgrade our call to SELL from HOLD on Berjaya Food (BFood) with a lower fair value (FV) of RM0.78/share. Our FV of RM0.78/share is based on a P/E of 17x on FY21F EPS. Our P/E is at a slight discount to BFood’s historical average 1-year forward P/E as the group is negatively affected by the Covid-19 pandemic.

• BFood’s FY20 net loss of RM18.9mil missed our and consensus expectations. The group suffered a loss of RM30.2mil in 4QFY20.

• The variance was largely due to a worse-than-expected Covid-19 impact on the group’s sales. This was further exacerbated by higher interest expense due to a change in MFRS 16 adoption and calculation method. BFood also recorded an impairment loss and a write-down of PPE as the group closed nine stores in 4QFY20.

• We have cut our earnings forecasts by 40% for FY21F and 10% for FY22F. We have also introduced our earnings forecast for FY23F of RM27mil.

• FY20 revenue was RM634.7mil (roughly -7% YoY based on our calculations). Starbucks’ revenue fell about 5% YoY to RM533mil in FY20 while that of KRR fell 11% to RM74mil.
• Starbucks’ sales were hit by the Covid-19 pandemic, especially during the movement control order (MCO) in April and May with temporary store closures and limited operating hours. SSSG slid 3.8% YoY. No new stores were added in 4QFY20 (3 stores added so far in 1QFY21).
• FY20’s SSSG was lower by 15% for Jollibean and by 13% for KRR. Jollibean has 33 stores (+1 YoY) while KRR has 73 stores (-7 YoY).

• Comparing 4QFY20 with 3QFY20, BFood’s revenue dropped 30% to RM112mil (RM159mil in 3QFY20). Starbucks’ revenue contracted 29% to RM95mil (RM134mil in 3QFY20) while KRR’s slumped by 34% at RM11mil.

• The poor sales performance in 4Q20 was largely attributed to the Covid-19 pandemic outbreak, which resulted in a marked reduction of tourist arrivals in Malaysia and Singapore. Furthermore, around half of BFood’s stores ceased operations temporarily during MCO, which started on 18 March 2020.

• BFood’s 4QFY20 EBIT turned negative to a RM13mil loss from a RM6mil EBIT in 3QFY20. Starbucks’ EBIT turned negative at RM3mil while KRR recorded a bigger loss of RM11mil. Jollibean’s EBIT was RM0.6mil.

Source: AmInvest Research - 24 Aug 2020