• We maintain HOLD on Berjaya Food (BFood) with a higher fair value of RM 1.25/share (from RM1.13/share previously). Our fair value of RM1.25/share is based on a P/E of 17x on FY22F EPS.

• BFood’s 1QFY21 core net profit came in at RM10.4mil. This largely exceeds both our and consensus estimates, making up 78.7% and 51% of full-year earnings forecasts respectively. This was due to the group’s effective cost management implemented to mitigate the impact of the pandemic and improved performance from Kenny Rogers Roasters (KRR) after the closure of non-performing stores in FY20.

• Hence, we increase our earnings forecasts for FY21F, FY22F and FY23F by 62%, 9% and 8% respectively, to account for the higher-than-expected sales and operating profit margin resulting from the cost–cutting measures in 1QFY21.

• BFood’s 1QFY21 revenue of RM180.7mil came in at 23.9% and 24.2% of our and consensus estimates. Revenue for the period is comparable to that of the previous year’s corresponding quarter, suggesting that revenue has returned to pre-Covid-19 levels.

• Starbucks posted a revenue of RM156.5mil, up 3.6% YoY in 1QFY21 while KRR’s increased by 8.3% to RM21.7mil. Both Starbucks and KRR’s performance was similar to levels seen pre-pandemic. At the same time, Starbucks opened six new stores while KRR opened five, boosting the group’s revenue. SSSG for Starbucks and KRR was - 1% and -8% YoY respectively.

• QoQ comparisons on the other hand indicated an impressive improvement in 1QFY21. Due to the low base effect as 4QFY20 was a loss-making period, BFood’s revenue surged 62.0% in 1QFY21 from RM111.6mil in 4QFY20. Starbucks’ revenue was up 61.1% to RM156.5mil in 1QFY21 from RM95mil in 4QFY20, while KRR’s shot up by 74% to RM17.4mil from RM10mil. Jollibean’s sales rose 11% to RM4.5mil in 1FY21 from RM4.0mil in 4QFY20.

• We believe the QoQ increase in revenue in 1QFY21 was due to the easing of restrictions. 1QFY21 coincided with the recovery movement control order (RMCO), with improved customer sentiment coupled with strong pentup demand and footfall largely contributed by the return of the office crowd.

• BFood’s 1QFY21 EBIT of RM24.5mil resulted in an EBIT margin to 13.6%. Starbucks EBIT was RM24.7mil in 1QFY21 while KRR posted an EBIT of RM0.5mil. Jollibean’s EBIT was RM0.2mil in 1QFY21.

• Although the CMCO has been reimplemented, we believe that BFood’s 2QFY21 sales would only be marginally impacted. 2Q is usually BFood’s best performing quarter due to the holiday season. Also, economic activities are still continuing, which means stores remain open in contrast to the MCO period.

• Moving forward, we believe BFood’s sales growth would be driven largely by the recovery in SSSG as the Covid-19 situation improves. We expect earnings to normalize at the end of the CMCO period and new store openings would also drive sales for the group. BFood plans to open an additional 12 Starbucks stores and 5 ssKRR stores in FY21F.

Source: AmInvest Research - 13 Nov 2020