Results

• In line – 9MFY18 core net profit of RM17.8m (+29.6% YoY) was in line with our expectation at 74.5% of full year forecast but under consensus’ at 70.5%.

Deviations

• None.

Dividend

• Declared DPS of 1 sen (3QFY17: 1 sen) going ex on 10/04/18 and payable on 12/04/18.

Highlights

• QoQ: 3QFY18 core net profit decreased by 11.7% from RM5.8m to RM5.1m. The increased sales from the holiday season and the absence of losses from KRR Indonesia (which was disposed of) was more than offset by the higher effective tax rate.
• YoY: Core net profit rose by 14% to RM5.1m due to higher sales from Starbucks Malaysia (positive SSSG and opening of new cafes) as well as the absence of losses from KRR Indonesia that was disposed of in 3QFY18.
• YTD: 9MFY18 core net profit was up by 29.6% to RM17.8m due to similar reasons mentioned above.
• Outlook: BFood will continue growing its top line by expanding 25-30 new Starbucks outlets annually. Recent strengthening of MYR should have a healthy effect on Starbucks Malaysia’s margin going forward as circa 40% of Starbucks COGS (coffee beans, frappuccino mix, packaging materials, etc.) are denominated in US$ as per BFood’s sourcing agreement with Starbucks 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

BUY; TP: 2.12 ↔

• Recent strengthening of the ringgit bodes 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.

Valuation

• We maintain our BUY call with an unchanged TP of RM2.12 based on an earnings multiple of 25x FY19 EPS of 8.5 sen, in line with regional peers .

Source: Hong Leong Investment Bank Research - 16 Mar 2018