Results

• In line – 1HFY18 core net profit of RM11.2m (+11.1% YoY) was in line with our expectation at 46.7% but under consensus’ at 42.9%.

Deviations

• None.

Dividend

• Declared DPS of 1 sen (2QFY17: 1 sen) going ex on10/01/18 and payable on 12/01/18.

Highlights

• QoQ: 2QFY18 core net profit increased by 8.9% to RM5.8m mainly due to lower losses from KRR Indonesia operations.
• YoY: 2QFY18 core net profit rose 15.5% to RM5.8m (from RM5.0m a year ago) mainly due to (1) Opening additional Starbucks cafes; (2) Strong same-store-sales growths (SSSG) from Starbucks Malaysia (due to a hike in prices at the start of the year) (+3.0%) and KRR (+ 8.7%); and (3) lower losses in KRR Indonesia operations from the further closures of loss making outlets.
• YTD: 1HFY18 core net profit was up by 11.1% to RM11.2m due to similar reasons mentioned above.
• Outlook: BFood will continue growing its top-line by expanding by 25-30 new Starbucks outlets p.a.. Recent strengthening of MYR should have a healthy effect on Starbucks Malaysia’s margins going forward as approximately 40% of Starbucks COGS (coffee beans, frappuccino mix, packaging materials etc.) are denominated in US$ as part of BFood’s agreement with Starbucks Corp (USA). Bfood will continue its efforts to turnaround KRR Malaysia (which recorded RM4.3m in losses before tax in FY17) with low priced menu options and the opening of five new KRR Malaysia restaurants this year.

Risks

• Persistent weak consumer sentiment, ringgit weakening, competition to KRR Malaysia operations from Nandos, KFC and Texas Chicken.

Forecasts

• Unchanged.

Rating

HOLD; TP: 1.62 ↔

• Recent strengthening of the ringgit will bode well for the group going forward as 40% of Starbucks Malaysia’s COGS are denominated in US$. The recent disposal of loss making KRR Indonesia (which recorded RM9m losses before tax in FY17) should see earnings accelerate in the coming quarters. Despite this, note Bfood have guided that they expect to recognise a one-off loss associated with this disposal due to a portion of intercompany debt being paid off in 3QFY8.

Valuation

• We maintain our HOLD call with an unchanged TP of RM1.62 based on an earnings multiple of 21x FY19 EPS of 7.7 sen.

Source: Hong Leong Investment Bank Research - 14 Dec 2017