The operator of Kenny Rogers, Starbucks and Jollibean. Listed in 2011, Berjaya Food Berhad (BJFOOD) is primarily engaged in developing and operating the "Starbucks Coffee" (Starbucks) brand in Malaysia and Brunei, developing and operating the "Kenny Rogers Roasters" ("KRR") chain in Malaysia as well as Jollibean and various brands in Singapore. Bulk of the group’s revenue was generated from Starbucks and KRR, which collectively made up 94% of FY21 top line. As of 4Q22, BJFOOD owns 356 Starbucks outlets and 68 KRR outlets.

Growing Starbucks brands. Notwithstanding the tapering revenge spending effect, we continue to like BJFOOD, anchored by Starbucks' new outlet openings and higher sales from active promotions and innovative products. To recap, BJFOOD launched 11 new stores in 4Q22, of which 45% constituted drive-through stores. Going into FY23, the group is targeting to launch 40 Starbucks stores, with the drive-through store being the main store format given its relatively strong sales performance than the others (c.30% of FY22 total revenue despite making up just c.20% of its total store count). BJFOOD is also aiming to open more Starbucks stores in suburban areas and office buildings, where the former has a larger ticket size per customer while the latter requires lower capex due to a lower average-sized store yet having a steady office crowd.

Besides, we applaud the group's efforts in ramping up its marketing and promotions for seasonal drinks and merchandises, which result in higher margins. Such efforts have cushioned the higher staff cost – higher raw material cost such as coffee bean is mitigated by the hedging policy, preserving margin.

Indicators on the mend. Technically, BJFOOD is trading near the strong support levels of RM0.79-0.82, with indicators on the mend. A successful breakout above the stiff resistance of RM0.98 will signal a new up-leg, spurring greater upside toward RM1.05-1.09 levels. Cut lost at RM78.

Source: Hong Leong Investment Bank Research - 18 Oct 2022