9MFY19 core PATAMI of RM22.3m (+41.9% YoY) was in line with ours but above consensus expectations, accounting for 74.7% and 82.9% of full year forecasts, respectively. 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. Furthermore, we are greatly encouraged by KRR Malaysia’s turnaround, resulting from streamlining of menu items and closing of unprofitable outlets. Our forecasts are maintained as results were in line. Our BUY call and TP of RM2.05 (pegged to an unchanged 25x PE on CY19 EPS) remain unchanged.

In line. 9MFY19 core PATAMI of RM22.3m (+41.9% YoY) was in line with ours but above consensus expectations, accounting for 74.7% and 82.9% of full year forecasts respectively.

Dividends. Declared DPS of 1 sen (3QFY18: 1 sen) going ex on 9 Apr 2019, taking YTD dividend to 3 sen (9MFY18: 3 sen) per share.

QoQ. Revenue rose 8.4% to RM180.5m, driven by festive season spending. Core PATAMI grew 27.6% due to better sales as well as Kenny Rogers Roasters (KRR) posting marginal profit in 3QFY19 vs RM1m losses in 2QFY19 at the EBIT level.

YoY. Top line grew by 9.8% while core PATAMI rose to RM9.0m (+74.8%). Profitability was driven by additional Starbucks café openings, better performance from KRR, and strong same store sales growth (SSSG) in both Starbucks (+8.0%) and KRR (+2.5%) operations. The commendable Starbucks SSSG figure was due to the successful introduction of new product offerings and merchandising.

YTD. Core PATAMI swelled 41.9% to RM22.3m from RM15.7m from the opening of additional 27 Starbucks outlets, bringing total store count to 282. Additionally, the absence of KRR Indonesia operations (which was disposed of in FY18 further boosted Bfood’s YTD growth. (KRR Indonesia reported RM2.0m losses at the EBIT level in 9MFY18)

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. Furthermore, we are greatly encouraged by KRR Malaysia’s turnaround, resulting from streamlining of menu items and closing of unprofitable outlets. Note that KRR Malaysia posted marginal profit in 3QFY19 after losses of RM6.7m in FY18.

Forecast. Maintain as Results Were in Line.

Maintain BUY, TP: RM2.05. We are encouraged by the change in fortunes of KRR Malaysia operations. Going forward, we expect the combination of positive SSSG and opening of new Starbucks 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 - 15 Mar 2019