KUALA LUMPUR (Dec 7): The share price of Berjaya Food Bhd (BFood), which operates the Starbucks franchise in Malaysia, has tumbled 16% over the last two months, bringing its year-to-date decline to 42.3%.

The F&B retailer’s share price closed at 60 sen on Thursday after 9.1 million shares were traded, up half a sen from Wednesday (Dec 6)’s close but down 11.5 sen from its closing price of 71.5 sen on Oct 6. Its current share price gives the group a market capitalisation of RM1.17 billion.

Since the start of the Israel-Hamas conflict on Oct 7, some Malaysians have pledged to boycott companies with alleged ties to Israel ― with reports claiming that the boycott also targeted Starbucks outlets.

In its recent announcement of its first quarter financial results, BFood hinted that its Starbucks franchise had also been impacted by the conflict.

“Berjaya Starbucks is expected to return to its revenue growth momentum once the challenging market conditions, brought about by the recent conflict in the Middle East, are back to normality,” it said in its Nov 15 filing on its results for the first quarter ended Sept 30, 2023 (1QFY2024).

BFood reported a net profit of RM19.03 million for 1QFY2024, down 45.16% from the RM34.7 million it made in the corresponding quarter a year earlier, as inflationary cost pressures took a toll on its margins, while topline dipped a marginal 1.6% to RM278.53 million, from RM283.05 million previously.

RHB downgrades it to ‘sell’ amid worse-than-expected boycott impact

The stock has been downgraded to “sell” by RHB Research, with a target price (TP) of 46 sen ― a further 23% drop from its current price.

RHB Research said it had observed an estimated 30% to 40% fall in foot traffic based on the research house’s visits to Starbucks outlets located in malls during peak hours.

“Most of its competitors, however, had regular footfalls. This situation is worse than what we expected, and it may have compelled Starbucks to be more aggressive in its promotion ― which will likely translate to material gross profit margin (GPM) erosion,” it said in a note to clients on Wednesday (Dec 6).

RHB opined that post-boycott, recovery may not be so straightforward for the franchise, as gains made by competitors during the period may be “sticky”, especially among less brand-conscious consumers.

It also highlighted that the timing of this boycott is “inopportune, since the year-end normally constitutes a seasonal peak period”.

Factoring in toned-down sales growth and GPM assumptions — reflecting subdued sales, increased promotional efforts, and efforts to address the aftermath of the boycott — RHB cut its earnings forecasts for BFood by 21% for FY2024 to RM66 million, by 17% for FY2025 to RM80 million, and by 7% for FY2026 to RM94 million.

“Our FY2024 forecasted earnings are 25% lower than the street’s and we think its share price has yet to reflect downside risks to earnings,” the research house said, as it downgraded its recommendation on the stock to “sell” from “neutral”. The 46 sen TP implies an 11 times CY2024 forecast price-to-earnings ratio, from 15 times previously.

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