BFood reported 1QFY23 core PATAMI of RM34.7m (QoQ: -14.7%, YoY: 3x). This is within our estimates (22%) but above consensus (28%). Overall, top-line held steady despite being the seasonally softer quarter. The group is feeling the pinch on the bottom-line with increasing opex particularly from the unfavourable forex and elevated raw material prices. We applaud the group’s commendable trajectory reflected in its SSSG figure: Starbucks (+25%), KRR (+65%) and Starbucks Brunei (+45%). We updated our model for FY22 audited accounts and introduce FY25 forecasts. Reiterate BUY with higher TP of RM1.31 (from RM1.10) pegged to 16x PE of FY23 (from CY22).

Within our but exceed consensus. BFood chalked in 1QFY23 results with revenue of RM283.1m (QoQ: -2.8%, YoY: +50.8%) and core PATAMI of RM34.7m (QoQ: - 14.7%, YoY: 3x). The latter accounted for 22%/28% of our and consensus full year forecasts which we deem to be within our expectations but exceeded consensus. Note that 1Q is a historically weaker quarter for the group with the absence of festive period or long holidays.

Dividends. DPS of 0.5 Sen Declared, Going Ex on 6 Dec 2022 (1QFY22: 1 Sen).

QoQ. Top line eased by -2.8% to RM238.1m with sales from Malaysia registered a decline of -3% despite better sales recorded from other SEA countries (+1%). This is coming off from a high base effect as 4QFY22 quarter was boosted with long holiday festive period of Hari Raya and Ramadhan. EBITDA margin contracted by -4.8ppt on the back of higher operating costs incurred coupled with unfavourable forex. This in turn caused bottom line to drop further by -14.7% to RM34.7m despite the lower effective tax rate recorded (1QFY23: 31.9% vs 4QFY22: 37.6%)

YoY. Revenue leaped by 50.8% thanks to the higher SSSG registered particularly from the full quarter effect of the new Starbucks outlets opened during FY22. Encouragingly, core PATAMI improved by 3x attributable to (i) higher investment related income; (ii) KRR turnaround and; (iii) lower effective tax rate (1QFY23: -31.9% vs 1QFY22: -40.3%).

Outlook. We applaud the group commendable trajectory reflected in its SSSG figure. From management guidance, SSSG for Starbucks, KRR and Starbucks Brunei stands at 25%, 65% and 45%, respectively. BFood plans to open 35-40 new stores with targets in rural markets. To maintain its brand equity, the group will continue to review and refresh its food menu by introducing new food categories and collaborating with best-in-class culinary experts and celebrities. Currently, Starbucks stands at 363 stores (FY22: 356 stores) with 7 new stores launched in 1QFY23 with 2 new outlets are drive-through concept stores. As for KRR, a leaner concept store (68 stores currently) would enable the group to continue maintaining its profitability. The group plans to launch 9 new KRR stores in FY23 with a smaller footprint restaurant concept in high traffic secondary township areas. As for its vegan venture Sala that stands at 7 stores, the group plans to open 4 more outlets and introduce innovative new plantbased food and beverage offerings to excite customers.

Forecast. We updated our model for FY22 audited accounts and introduce FY25 forecasts. Post annual report update our FY23/24 forecasts increase by 2%/3%.

Maintain BUY, with higher TP of RM1.31 (from RM1.10) as we roll forward our valuation year to FY23 (from CY22) pegged to unchanged 16x PE. 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 would enable the group to continue maintaining its profitability.

Source: Hong Leong Investment Bank Research - 11 Nov 2022