BFood’s blitzed estimates with 1HFY22 core PATAMI of RM50.5m (2.3x YoY). This came in above our and consensus expectations, accounting for 98% and 88%, respectively. Top line remained robust thanks to sustained demand from festive season coupled with the easing of interstate and overseas travel since mid Oct 2021. We are still positive on Starbucks which continues to grow via new outlet openings and higher sales from active promotions and continual innovative products. Additionally, improved mobility with resumption of domestic tourism should bode well for KRR that rely heavily on dine -in sales. We raise our FY22/23/24 forecast by 39%/36%/31%. After forecast revision and rolling over our valuation year to CY22 (from FY22 June) our TP increases to RM3.80 (previously RM2.69) based on unchanged 20x PE. Maintain BUY.

Above expectations. BFood’s 2QFY22 core PATAMI of RM38.9m (QoQ: 3.3x; YoY: 3.5x) brought 1HFY22 sum to RM50.5m (2.3x YoY). This surprised on the upside, exceeding our and consensus expectations, accounting for 98% and 88% of full year forecast, respectively. The outperformance was due to better-than-expected sales recorded and margin improvement from favourable sales mix.

Dividends. Declared DPS of 1.0 sen, going ex on 14 March 2022 (2QFY21: 0.5 sen). 1HFY22 dividend amounted to 2.0 sen per share (1HFY21: 1.0 sen per share).

QoQ/YoY. Sales climbed up by +45% QoQ/ +57% YoY to RM272.8m. This commendable performance was on the back of the resumption of interstate and overseas travel starting since 11 Oct 2021, coupled with the year-end festive sales and Christmas season. Note that 1QFY22 was at the height of dine -in restrictions during the Phase 1/2 implementation. Encouragingly, core PATAMI recorded a stronger growth of +234% QoQ/ +250% YoY to RM38.9m thanks to the EBIT margin improvement from better sales mix.

YTD. Top line staged a 30% increment to RM460.5m due to higher SSSG following gradual easing of restrictions. Bottom line was bolstered by 2.3x reaping from (i) margin expansion due to favourable sales mix (EBITDA margin +2.2ppt); and (ii) lower effective tax rate of 37.8% in 1HFY22 vs. 48.7% in 1HFY21. From management guidance, YoY SSSG figures for Starbucks Malaysia was +51%, KRR (+61%), and Starbucks Brunei (+12%) vs. SPLY.

Outlook. With further easing of restrictions following the encouraging vaccination rate, we are delighted to witness sustained recovery for BFood. Management shared that the take up for takeaway and drive-through Starbucks have been robust with the change in consumer behaviour. We understand that the strong sales momentum that surpasses the pre-pandemic level was on the back of higher ticket size from drive through stores vs regular in-store channel. Currently Starbucks stands at 343 stores with 61 drive thru concept stores. We are still positive on Starbucks which continues to grow via new outlet openings and higher sales from active promotions and continual innovative products. Improved mobility with resumption of domestic tourism should bode well for KRR that rely heavily on dine-in sales.

Forecast. We raise our FY22/23/24 forecasts by 39%/36%/31% to account for higher sales volumes and better cost control.

Reiterate BUY with higher TP of RM3.80 (previously RM2.69) after rolling over our valuation year from FY22 (June) to CY22 based on unchanged 20x PE multiple. We are 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 would enable the group to continue maintaining its profitability.

Source: Hong Leong Investment Bank Research - 11 Feb 2022