No more losses from Kenny Rogers

Kenny Rogers Malaysia and Indonesia has been a major strain on BJFOOD for years. Removing the unit entirely will remove losses from KKR Indonesia of RM7.1m (BJFOOD owns 51%) and now also KKR Malaysia's losses. That share of loss was 31% of FY16 profits!

Reducing its unnaturally high tax rate

BJFOOD has not been enjoying a reduction in tax rates from KKR’s losses. In fact, KKR increases BJFOOD’s tax expense causing an unnaturally high tax rate of 37% due to difference in tax jurisdictions. Disposing KKR will allow BJFOOD to pay taxes only for BJ Starbucks, reducing the tax rate to at least 30% (corporate tax rates are at 24%). That equals an 11% increase in PAT (do the math yourself).

Reduces BJFOOD’s borrowings and interest expense

BJFOOD is set to pay RM14m in interest expenses in FY17. Simple calculation that out of a total 389 outlets (Starbucks, KKR, Jollibean), 123 outlets or 32% is KKR  outlets, BJFOOD can reduce its interest expense by RM5m or 32% per year. That is 22% of FY16’s profits.

Benefit from the stronger Ringgit (now @ 4.43)

BJFOOD is a beneficiary of the stronger Ringgit. After a horrible 2016 and most of 2017 due to stronger Dollar. It is now the Ringgit’s turn to regain strength as foreigners bring back their capital to Malaysia. Not to forget, BJFOOD increased pricing by 9% starting 2017 so if Ringgit strengthens and higher price remains, BJFOOD is going to benefit from double bonanza. Example: RM up 5% and pricing remain up 9%= 15% increase in topline.

More focus on its strongest brand - Starbucks

BJFOOD is increasing the number of Starbucks outlets by more than 10% per year, building drive-thrus and at office buildings. Added on to that is existing stores that grow by around 5-10% a year. This helps topline growth to continue from Starbucks.

More profits means more dividends

BJFOOD has a 75% dividend payout policy. If they are able to achieve the savings and growth from what I mentioned that equals a total of 58%, be prepared for dividends per share to increase.

What could BJFOOD be worth?

BJFOOD could be worth 58% more than its current price of RM1.88, around RM3 which tallies with my previous posts. Remember that Starbucks Corp in the US trades at 30x PE and this should be a benchmark for Starbucks Malaysia which grows at a faster pace.