Investment Highlights

• We upgrade our call on Berjaya Food (BFood) from HOLD to BUY with a higher fair value of RM1.72/share (from RM1.25/share previously). Our fair value of RM1.72/share is based on a PE of 17x on FY22F EPS of 10.1 sen.

• We believe that BFood would benefit from the easing of the movement restriction order in mid-February 2021. Our PE of 17x is roughly the same as BFood’s two-year average PE.

• BFood’s 1HFY21 core net profit of RM21.5mil was a surprise and came above expectations, meeting our fullyear estimates whilst making up 77% of consensus estimates. This was due to the group’s lower-thanexpected operational expenses from the effective cost management measures implemented during the height of the pandemic.

• BFood has also declared a second interim dividend of 0.5sen/share, bringing total dividends for 1HFY21 to 1.0sen/share. We forecast BFood to declare another dividend of 1.0sen/share in 2HFY21.

• We raise our earnings forecasts for FY21F, FY22F and FY23F by 64%, 38% and 35% respectively to account for a strong recovery coming out of the pandemic. We have also accounted for higher-than-expected sales and operating profit margin resulting from the cost rationalization initiatives. The positive impact of the cost streamlining measures is finally coming into fruition. Also, KRR is expected to break even by end-FY21F.

• BFood’s 2QFY21 revenue of RM174.1mil was down 5% YoY vs. RM184.1mil in 2QFY20. This was due to the lower footfall in stores as customers continued to avoid going out and spending on discretionary goods. BFood also closed certain non-performing stores during the period.

• Starbucks posted a revenue of RM151mil, down 5% YoY in 2QFY21 while KRR’s revenue decreased significantly by 42% to RM13.4mil. The decline in Starbucks’ revenue was due to the lower footfall at the stores but this was slightly offset by sales in the drive-through outlets. As most of KRR stores are located in shopping malls, KRR’s revenue was dragged by the reduced footfall. As a result, SSSG for Starbucks and KRR was -3.5% and -30% respectively.

• On a QoQ basis, sales were flattish in 2QFY21 with weaker revenue in all segments as a result of lower footfall. BFood’s revenue slid 3.7% QoQ in 2QFY21 whereas Starbucks and KRR’s declined 3.5% and 23% respectively. On the other hand, the Singaporean operations, which run Jollibean, saw revenue rising by 12% from RM4.5mil to RM5mil. Store count for Starbucks at end-2QFY21 was 325 (+3 stores) while KRR’s was unchanged at 71.

• Moving forward, we believe BFood’s sales growth would be driven largely by the recovery in SSSG as the Covid-19 situation improves and opening of new Starbucks stores. Earnings in 2HFY21 are expected to remain rather volatile due to the reimplementation of the MCO in all states except Sarawak starting 13 January which will affect sales in the third quarter. However, with the easing of the MCO and roll-out of the national vaccination programme at the end of February, we expect to see an improvement in consumer sentiment and a gradual recovery in customer activity, which will result in a pick-up in sales.

Source: AmInvest Research - 10 Feb 2021