Investment Highlights

• We maintain our BUY call on Berjaya Food (BFood) with a higher fair value (FV) of RM2.23/share (from RM2.16/share previously). Our FV is based on an unchanged PER of 17x FY22F EPS. Our FV also incorporates a 3% price premium for our 4-star ESG rating.

• BFood’s FY21’s net profit of RM47.4mil came in within our forecasts but exceeded consensus expectations. It made up 105% and 110% of our and consensus expectations respectively.

• Going forward, we have increased our earnings forecast for FY22F/FY23F by 6%/16% respectively. We expect the group to flourish as the economy opens in 4Q2021.

• The Starbucks segment in particular displayed resiliency and outperformed expectations despite net store closures in the last quarter. We believe that the improvements made to the Starbucks business model have positioned the group for stronger per outlet performances when footfall volumes start to recover.

Financial Results

• The group posted a quarterly revenue of RM181mil in 2QFY21, roughly consistent with the previous three quarters. This is a growth of 62% YoY. Starbucks Malaysia contributed to c.80% of the figure, while BFood’s other endeavours performed poorer on a QoQ basis. This was despite more severe lockdowns and a net decrease in Starbucks outlets in the last quarter.

• BFood registered a quarterly PBT of RM22.4mil, a 22% QoQ increase in 4QFY21 despite a weaker revenue. (4QFY20 recorded a loss of RM28.5mil). PBT margin was 12.4%, a QoQ increase of 2.3 ppts. This is due to a recognition of income from the deferred revenue of Starbucks rewards upon a switching of formats.

• BFood has announced a fourth interim dividend of 1.0 sen/share, bringing the total to 3.0 sen/share for FY21, implying a payout ratio of 22%.

Store Details

• For the Starbucks segment, the management team has demonstrated versatility in driving consumer interest, switching up outlet formats, capitalising on 3rd party delivery services. The franchise is set to benefit from strong 3rd party delivery contributions and higher footfall as lockdown restrictions are relaxed amid optimistic vaccination rates.

• To generate consumer interest, the group has recently switched its reward format from a transaction-based system to a point-based system. Originally reserved for implementation in FY22F, it was brought forward by 2–3 months to counter tightening lockdown restrictions. We believe that this is a testament to the management’s proactive and versatile capability.

• The group targets to open 35–40 Starbucks stores in FY22F. 1QFY22 alone will see about 6 new stores. The group saw one Starbucks outlet opened in the last quarter, while two more were closed.

• The group’s new vegan Sala venture has five operational outlets, with 3–5 more outlets slated to open within FY22F. The stores contributed to <1% of FY21’s revenue. Expansion will continue to be slow, given its niche appeal. We doubt that it will provide a material contribution to earnings in the near term.

• On the other hand, we expect weak contributions from Kenny Rogers Roasters (KRR) and the foreign outlets. KRR has undergone considerable changes in a streamlining effort. These include utilising ghost kitchens and shutting down less successful outlets. While these have led to improved and consistent performances in the last few quarters, its performance dipped in 4QFY21 due to stricter lockdown restrictions. We expect further weakness from KRR in the next quarter.

Source: AmInvest Research - 19 Aug 2021