BFood’s 3QFY22 core PATAMI of RM31.6m (QoQ: -18.8%; YoY: >+100.0%) brought 9MFY22 sum to RM82.1m (+2.5x YoY). This surpassed our and consensus expectations, accounting for 114% and 99%, respectively. Top line remained robust attributable to improved mobility after further relaxation of Covid-19 restrictions. SSSG recorded encouraging figures with Starbucks Malaysia (+23%), KRR (+30%), and Starbucks Brunei (+10%) vs. SPLY. Reiterate BUY with higher TP of RM4.83 based on 16x PE multiple pegged to CY22 EPS. We are impressed with BFood’s growth opportunity and the company is well positioned to keep up with the momentum.

Above estimates. BFood’s 3QFY22 core PATAMI of RM31.6m (QoQ: -18.8%; YoY: >+100.0%) brought 9MFY22 sum to RM82.1m (+2.5x YoY). This surpassed our and consensus expectations, accounting for 114% and 99%, respectively. The outperformance was due to better-than-expected sales recorded and lower opex from effective cost management strategies.

Dividends. Declared DPS of 1.5 sen, going ex on 7 June 2022 (3QFY21: 1.0 sen) 9MFY22 dividend amounted to 3.5 sen per share (9MFY21: 2.0 sen per share).

QoQ. Revenue softened by -9.8% to RM246.0m owning to high base effect. Note that 2QFY22 was an exceptionally strong quarter attributable to the year-end festivities coupled with additional boosts from resumption of interstate travel towards the tail end of 2021. Subsequently, core PATAMI decreased by -18.8% to RM31.6m due to (i) lower EBITDA margin by -1.5ppt; and (ii) higher effective tax rate of 39.3% vs 35.2% in 2QFY21.

YoY/YTD. Top line climbed by +35.4% YoY/+31.7% YTD due to higher SSSG following gradual easing of travel restrictions. From management guidance, YoY SSSG figures for Starbucks Malaysia (+23%), KRR (+30%), and Starbucks Brunei (+10%) vs. SPLY. Encouragingly, bottom line was bolstered by 2.5x reaping from (i) lower opex from effective cost management (EBITDA margin +2.4ppt YTD); and (ii) lower effective tax rate of 37.8% in 9MFY22 vs. 48.7% in 9MFY21.

Outlook. We understand that the strong sales momentum that surpassed the pre pandemic level was driven by higher transaction counts. The group has taken efforts in ramping up its marketing and promotions for seasonal drinks and merchandises which command higher margins. Additionally, the increase in merchandises (cups, tumblers, tote bags, water bottles) in Starbuck stores also helped to attract foot traffic. To improve customer retention and services, Starbucks started to i ntroduce a new division of “retail hospitality” that are responsible to be the point of contact for customer to get more info on Starbucks offering. We applaud KRR continual improvement with commendable SSSG of +30% YoY. We opine this was partially contributed by the wider selection and variety in KRR stores. Apart from the signature chicken dishes, KRR now serves fish fillet and meatballs options for consumers to choose from.

Forecast. We raise our FY22/23/24 forecasts by 52%/66%/84% to account for higher sales volumes and improving margin.

Maintain BUY, with higher TP RM4.83 (from RM3.80) based on 16x PE (previously 20x) of CY22 EPS. This PE multiple is roughly in line with peers (Figure #2). We are positive on Starbucks which continues to grow via new outlet openings and higher sales from active promotions and continual innovative products. We are impressed with BFood’s growth opportunity and the company is well-positioned to keep up with the momentum.

Source: Hong Leong Investment Bank Research - 12 May 2022