Investment Highlights

• We upgrade our call on Berjaya Food (BFood) to HOLD from SELL with a higher fair value (FV) of RM1.13/share (vs. RM0.78/share previously). Our FV of RM1.13/share is based on a P/E of 17x on FY22F EPS. We think that the group will continue to be negatively affected by the Covid-19 pandemic albeit with gradual improvements.

• We increase our earnings forecast by 11%, 10% and 9% for FY21F, FY22F and FY23F respectively. We raise our forecasts as we expect better sales growth from 1QFY21 onwards. This is due to improved demand from the easing of the movement control order (MCO).

• We have made changes to our forecasts to account for the following: 1. Improving sales for Starbucks due to the easing of restrictions since the recovery MCO (RMCO) coupled with BFood’s plans to open up around 20 new stores in FY21F. These are expected to focus mainly on drivethrough and openings outside of KL and Selangor. 2. For Kenny Rogers Roasters (KRR), BFood aims to open up to 10 small-format stores, from 3 to 5 KRR smallformat previously, in FY21F. 3. Jollibean’s venture into other countries has been put on hold because of the Covid-19 pandemic.

• We expect better sales growth mainly from KRR, which is expected to break even or even post a positive PAT for FY21F. BFood has closed down 14 underperforming KRR stores in FY20, which should help reduce costs.

• Our higher sales growth assumption for FY21F has already reflected the impact of the conditional MCO (CMCO) enforced in red zones recently. We think that the impact of the CMCO in 2QFY21 would be slightly offset by the improved consumer demand following the easing of restrictions during the RMCO in 1QFY21.

• Also, BFood plans to open more KRR small-format stores in FY21F, from 3 to 5 previously to up to 10 small-format stores. These small-format stores aim to capture changing consumer trends in view of the increasing popularity of the grab-and-go concept store.

• It is also a “new norm” strategy that BFood is looking into as it believes that it is more viable to open smallformat stores in the current environment that require less capex and operating cost compared to restaurants. We believe this will result in higher revenue of KRR by 11% from RM69mil in FY20 to RM76m in FY21F, contributing about 10% to BFood’s overall revenue in FY21F

Source: AmInvest Research - 3 Nov 2020