BFood’s 3QFY21 core PATAMI of RM11.6m (QoQ: +4.4%; 3QFY20: -RM1.4m) brought 9MFY21 sum to RM33.1m. This came in better than our and consensus expectations, accounting for 100.6% and 92.8%, respectively. Top line remained robust despite pandemic lockdowns thanks to sustained demand coupled with stable EBITDA margins (+9.6ppt YoY) due to cost discipline. Despite the onset of recent implementation of MCO3.0, we remain confident in the group’s long term outlook anchored by Starbucks’ growth. Upgrade to BUY from Hold with higher TP of RM2.48 based on unchanged 20x PE multiple pegged to FY22 EPS.

Above expectations. BFood’s 3QFY21 core PATAMI of RM11.6m (QoQ: +4.4%; 3QFY20: -RM1.4m) brought 9MFY21 sum to RM33.1m (2.9x YoY). This beat our and consensus expectations, accounting for 100.6% and 92.8%, respectively. The outperformance was due to better-than-expected sales recorded and lower opex from effective cost management strategies.

Dividends. Declared DPS of 1.0 sen, going ex on 28 May 2021 (3QFY20: None) 9MFY21 dividend amounted to 2.0 sen per share (9MFY20: 2.0 sen per share).

QoQ/YoY. Despite the implementation of MCO2.0 from mid-Jan, sales inched up by +4.4% QoQ/+14.6% YoY to RM181.7m owning to the higher same-store sales growth (SSSG) across the board. From management guidance, YoY SSSG figures for Starbucks Malaysia (+15%), KRR (+3%), and Starbucks Brunei (+26%) vs. SPLY. Subsequently, core PATAMI recorded improvement of +4.4% QoQ to RM11.6m (3QFY20: -RM1.4m).

YTD. Top line gained modestly (+2.6%) at RM536.5m due to higher SSSG following gradual easing of restrictions. Bottom line was bolstered by 2.9x reaping from (i) lower opex from effective cost management (EBITDA margin +6.1ppt); and (ii) lower effective tax rate of 37.8% in 9MFY21 vs. 48.7% in 9MFY20.

Outlook. We are greatly encouraged by the group’s performance despite the onset of MCO2.0 in Jan. Currently Starbucks stands at 329 stores (FY20: 316 stores) with 4 stores successfully launched in 3QFY21. BFood targets to roll out 15-20 stores in the next 6 months with focus for drive-through concept stores (currently at 55 stores). Management shared that the take-ups for takeaway and drive-through have been robust during MCO2.0 and we expect the trend to continue with the onset of recent implementation of MCO3.0. We are still positive on Starbucks which continues to grow via new outlet openings and higher sales from active promotions and continual innovative products. Furthermore, a leaner concept KRR store (70 stores currently) would enable the group to continue maintaining its profitability. As for the new Sala outlets, despite being at a nascent stage, with the growing popularity among health conscious consumers, we opine this would be a worthwhile venture for the group.

Forecast. We raise our FY21/22/23 EPS forecasts by 29%/18%/18% to account for higher sales volumes and better cost control.

Upgrade to BUY, TP: RM2.48 (from RM2.10) based on unchanged 20x PE multiple pegged to FY22 EPS. Despite the near term hiccup with the recent implementation of MCO3.0, we opine the group long term prospects remain intact with the advent of vaccination program picking up at urgent pace. We remain confident in the group’s outlook anchored by Starbucks’ growth.

Source: Hong Leong Investment Bank Research - 7 May 2021