6MFY19 core PATAMI of RM13.3m (+19.0%) was in line with ours but above consensus expectations, accounting for 44.6% and 52.5% of forecasts respectively. We deem this in line as 2H usually accounts for ~54% of full year earnings. BFood will continue growing its top line by opening 25-30 new Starbucks outlets annually and 50 Starbucks kiosks at Petronas petrol stations as part of their partnership with the latter. We maintain our forecasts as earnings were in line. We keep our BUY call and TP of RM2.05 pegged to an unchanged 25x PE on CY19 EPS.

In line. 6MFY19 core PATAMI of RM13.3m (+19.0%) was in line with ours but above consensus expectations, accounting for 44.6% and 52.5% of forecasts respectively. We deem this in line as 2H usually accounts for ~54% of full year earnings.

Dividends. Declared DPS of 1 sen (2QFY18: 1 sen) going ex on 7 Jan 2019.

QoQ. Core PATAMI grew 12.7% from RM6.2m to RM7.0m. This was mainly due to lower finance cost and higher sales (from opening of more Starbucks outlets during the quarter).

YoY. Top line grew by 3.6% while core PATAMI rose to RM13.3m (21.0%). Profitability was driven by the absence of losses from KRR Indonesia operation, and a combination of positive same store sales growth in Starbucks Malaysia outlets (+2.7%) and opening of new Starbucks cafes.

YTD. Core PATAMI was higher by 19.0% from opening of new Starbucks outlets in Malaysia (BFood has opened 6 outlets in FY19, bringing the total store count to 269). Additionally, the absence of KRR Indonesia operations (which was disposed in FY18) further boosted BFood’s YTD growth (KRR Indonesia reported RM2.0m losses at the EBIT level in 6MFY18). The reported strong growth was despite RM2.8m losses from KRR Malaysia operations YTD.

Outlook. BFood will continue growing its top line by opening 25-30 new Starbucks outlets annually and 50 Starbucks kiosks at Petronas petrol stations as part of their partnership with Petronas. It will also push to turnaround KRR Malaysia with low priced menu options and the opening of 5 new KRR Malaysia restaurants this year. We are encouraged by the narrower reported losses from KRR Malaysia operations, which was just RM1m in 2QFY19 at the EBIT level (down from RM1.8m in 1QFY19 and RM4.2m in 4QFY18). YTD, BFood has closed 3 and opened 1 new restaurant, resulting in a current total of 75 outlets.

Forecast. Maintain as Results Were in Line.

Maintain BUY, TP: RM2.05. We are encouraged by the narrowing losses of KRR Malaysia operations. Going forward, we expect the combination of positive SSG and opening of new outlets to drive growth for the group. Our BUY call and TP of RM2.05 pegged to An Unchanged 25x PE on CY19 EPS Remains Unchanged.

Source: Hong Leong Investment Bank Research - 6 Dec 2018