Investment Highlights

• We maintain our BUY call on Berjaya Food (BFood) with a same DCF-derived fair value (FV) of RM1.25/share which implies a FY23F PE of 16x – 0.5 standard deviation above its 3-year mean. Our FV reflects an unchanged 3% premium based on an ESG rating of 4 stars.

• BFood’s 6MFY23 core net profit (CNP) of RM70.2mil was within expectations, accounting for 50% of our FY23F net profit and 51.6% of consensus estimates. Comparing to pre-pandemic period, 6MFY19 made up 55% of FY19 CNP.

• While we made no changes to FY23F–FY25F topline, our net profit estimates were slightly tweaked lower by 2%-3% to factor in higher operating expenses.

• The group declared a higher 2nd interim dividend of 2 sen per share during the quarter under review, bringing its total 6M dividend to 2.5 sen per share.

• YoY, the group’s 6MFY23 revenue rose by 26% on the back of higher same-store-sales growth (SSSG) of more than 10% from Starbucks Malaysia coupled with additional openings of cafes. As a result, 6MFY23 CNP jumped 39% YoY.

• 2QFY23 CNP of RM36mil dropped 9% YoY as margin was affected by higher operating costs albeit a higher revenue of 8% YoY. The increase in operating expenses were mainly contributed by persistently high raw material costs. On a comforting note, the impact of higher minimum wage imposed earlier will be minimal and fully reflected in FY23F.

• QoQ, 2QFY23 CNP was up by 2%, supported by an improvement of 4% in revenue, higher consumer spending on year-end festive promotions, school holidays and Christmas season.

• We remain positive on BFood’s near-to-medium term outlook, underpinned by: 1) continuous new outlet expansions, and 2) company’s rationalisation to cushion high raw material prices and turnaround loss-making divisions.

• This includes revamping its business model for Jollibean Malaysia from kiosk concept to distributorship, which involve producing soy milk drink to be distributed to food service players, such as 7-eleven, Krispy Kreme and Kelava. This will help to partially reduce rental and staff expenses.

• The group currently trades at an attractive FY24F PE of 12.1x, 20% lower than its 3-year mean of 15.1x.

Source: AmInvest Research - 14 Feb 2023