- We reaffirm our HOLD recommendation on Berjaya Food (BFood) with an unchanged fair value of RM2.85/share, pegged to a PE multiple of 25x on FY16F earnings.

- At our recent company visit, we remain positive over BFood’s growth prospect. The company continues to affirm that core operations remain intact amid the current challenging consumption sentiment.

- Most significantly, Starbucks Coffee’s SSSG is improving gradually. We understand that 4Q SSSG did not deteriorate further (3QFY15: -4.9%) thanks to more advertising and promotional activities undertaken, coupled with new store contribution. BFood will nevertheless continue to invest in promotional activities, particularly in 2HFY16F.

- It is interesting to note that BFood has embarked on a new concept Starbucks store, which incorporates a merchandise shop, and lunch and dinner menu. We view this positively as it would help boost topline and SSSG moving forward.

- Its maiden store was opened at Batu Ferringhi in May. Plans are afoot to replicate this concept within the tourist belt. BFood will be opening two stores with this concept at Piccolo Hotel (along Bukit Bintang) and KLIA Contact Pier by August.

- On the store expansion front for Starbucks, the company highlighted that its 25 new stores per annum target remains unchanged. For FY15, 24 new stores were opened with the bulk in 2HFY15 (17 stores).

- While KRR Malaysia remains profitable (it introduced new items in its menu recently – i.e. fish and steak), KRR Indonesia will experience some store rationalisation (for stores that cannot turnaround) to narrow losses. Management intends to close 1-2 stores per annum. The company is also slowing KRR Indonesia’s pace of expansion to about five new stores p.a. (vs. eight stores p.a. previously).

- We maintained our FY15F-FY17F EPS estimates pending the release of its FY15 results, scheduled on 15 June. Earnings outlook remains robust, underpinned by the full-year consolidation of Starbucks Coffee, starting from FY16F onwards.

- Our earnings estimate excludes contribution from Starbucks’ FMCG business. We expect contributions to only kick-in in FY17F.

- Valuation is fair at the current levels; it is trading at FY16F PE of 23x, which is above its historical 3-year mean trend of 16x.

Source: AmeSecurities Research - 9 Jun 2015