- We reaffirm our HOLD recommendation on Berjaya Food (BFood) with an unchanged fair value of RM3.05/share, pegged to a PE multiple of 25x CY15F earnings.

- BFood registered 1QFY15 core net profit of RM6mil (+15% YoY), which is in line with our expectations.

- 1QFY15 core net profit accounts for a small fraction of our full-year estimate of RM34mil at 18%. This is because our estimates include the 7 months earnings contribution from the full consolidation (100% stake) of Starbucks Coffee Sdn Bhd (BStarbucks) from end-September onwards.

- The acquisition of the remaining 50% stake of BStarbucks is expected to complete by September 2014. Post the completion of the acquisition of BStarbucks, we expect this high growth segment to contribute to 54% of revenue in FY15F.

- BFood’s 1QFY15 topline growth (+9% YoY) was driven by higher revenue generated at all of its key operating markets, and maiden contribution from Kenny Rogers Roaster in Cambodia despite the Muslim fasting month during the quarter. BFood’s Indonesia operation is still in the gestation period and made a small EBIT loss of RM1.6mil during the quarter. Its Indonesia operations are expected to break even in FY16.

- Nevertheless, we expect a stronger second half underpinned by seasonality factors, i.e. school holidays and festive seasons, and the full consolidation of BStarbucks. Note that 1Q is considered a soft quarter due to the fasting month.

- All in all, we maintain our EPS estimates and HOLD recommendation. The key rerating catalyst is the fast moving consumer goods for BStarbucks and potential acquisitions in the F&B space.

- While the stock is trading at a high forward PE of 30x FY15F (the higher end of its 3-year historical PE band), the full-year earnings contributions from the consolidation of BStarbucks will be reflected from FY16F onwards.

Source: AmeSecurities