1. Last week, I posted an article that something might be brewing in BJFOOD which owns a crown jewel being the Starbucks franchise in Malaysia. On the 8th of Feb 2017, Norges ceased to be a substantial shareholder in the company following a similar move by UBS AG. What is peculiar is that instead of moving down due to the massive disposals, the share price has instead moved up to RM1.75. This indicates that the blocks are being sold at a premium to market price, and the buyers are large players being able to absorb the volume.

2. Presentation slides by Starbucks Corp (listed on Nasdaq) during its recently concluded investor day indicate that Starbucks Corp's market cap rose 45% between 2014 and 2016 (US$81.9b). Over the same period, BJFOOD's market cap declined by 41%. The stark difference in fortunes presents an anomaly considering both companies rely on the same business to generate profits, i.e. Starbucks which is arguably the most popular premium coffee brand in the world. While some might argue that KKR is dragging down BJFOOD, the fact is that KKR is still profitable.

3. BJFOOD now operates 226 Starbucks outlets in Malaysia, having added 27 new outlets between 2015 and 2016. In 2017, Starbucks Malaysia plans to open a further 30 outlets bringing the total to 256. Hence, the value of BJFOOD's Starbucks Malaysia franchise could be worth as much as US$265m (RM1.16b) or RM3.08 per share. This is assuming the same valued per outlet paid, i.e. US$1.04m in 2014 when BJFOOD bought over 50% it did not own in Starbucks Malaysia. I think this is a very reasonable valuation per outlet, taking into account the fact that on average, stores in China generate sales of US$840k p.a. Assuming Malaysian stores can earn similar sales and achieve PAT margin of only 10%, i.e. US$84k p.a., that would translate into a yield of 8%.

4. Starbucks Corp plans to improve its gross margins by 1.4% through US$1.4b savings in procuring raw materials. That is positive for Starbucks Malaysia which has to source most of its raw materials from Starbucks Corp. 1.4% in savings for RM500m revenue is an additional RM7m in profits per year.

5. BJFOOD has been aggressively buying back its own shares. Between June to Sep 2016, they bought back 3,098,500 shares at an average price of RM1.50 amounting to RM4.644m. This can act as a floor in terms of pricing for risk management purpose.