Investment Highlights

• We maintain our BUY call on Berjaya Food (BFood) with a higher DCF-derived fair value (FV) of RM5.15/share (from RM5.05/share previously) based on revised FY23F-24F earnings together with a higher WACC assumption of 10.8% (from 8.7%), mainly to reflect the change in risk-free rate to 4% from 3.4%. No change in our terminal growth rate assumption of 1%. Our FV implies FY23F PE of 14.4x – 5% below its 3-year mean of 15.2x.

• BFood’s 4QFY22 net profit hit record high at RM41mil (+29% QoQ, +1.9x YoY), on the back of robust revenue of RM291mil (+18% QoQ, +61% YoY). This brings the FY22 earnings to RM123mil (+1.6x YoY) which is 7% higher than our forecast and 9% above consensus.

• The positive variance is mainly attributed to stronger-thanexpected sales of Starbucks Malaysia which reported a 21% QoQ revenue growth. Post-results, we revise our earnings forecasts upwards by 6% for FY23F and 9% for FY24F after imputing more bullish sales assumptions.

• Fueling up for future growth, the group opened 11 new Starbucks outlets during the quarter (+29 stores in FY22), bringing the total number of stores to 356. The group aims to be more aggressive in terms of store opening, targeting 38-40 new Starbucks outlets in FY23 (vs. 25-30 stores prepandemic). The same-store sales growth (SSSG) remains outstanding at 65% YoY in 4QFY22.

• Kenny Rogers Roasters (KRR) operation remains profitable with an EBIT of RM2.5mil in 4QFY22, resulting from the group’s continuous product innovation and cost savings efforts. As part of streamlining KRR’s operations, BFood closed 3 non-performing stores in FY22.

• Notably, the group’s 4QFY22 EBIT margin improved 2.7%- pts QoQ, despite the rising general cost of doing business. Recall that, instead of increasing the prices of products to offset inflation, BFood is actively improving its product portfolio by pushing higher-margin items and widening its offerings.

• Starbucks Malaysia’s performance remain resilient, underpinned by high customer retention rates and the effectiveness of the company’s strategy in generating consumer interest. Future SSSG growth will be driven by store network expansions and improvements in product offerings.

• Valuation-wise, the stock is trading at an attractive FY23F PE of 12.3x vs. 3-year historical average of 15.2x.

Source: AmInvest Research - 17 Aug 2022