BFood’s chalked in results within estimates with 1HFY23 core PATAMI of RM70.2m (YoY: +39.0%). Top line remained robust thanks to sustained demand from festive season coupled with the positive contributions from new outlets. YoY performance recorded softness with the normalisation of pent up demand. However, we see a pocket of opportunity from the expected Chinese tourists with the reopening of its border leveraging on its renowned Starbucks brand equity. Reiterate BUY, with unchanged TP of RM1.31 pegged to 16x PE of FY23. We are still positive on Starbucks which continues to grow via new outlet openings and higher sales. Furthermore, a leaner concept KRR store would enable the group to continue maintaining its profitability.

Largely within expectations. BFood’s 2QFY23 core PATAMI of RM35.5m (QoQ: +2.3%; YoY: -8.7%) brought 1HFY23 sum to RM70.2m (YoY: +39.0%). This was largely within estimates at 44%52% of our and consensus expectations, respectively. We deem this to be within estimates as we expect further upside from the expected Chinese tourists with the reopening of its borders leveraging on its renowned Starbucks brand equity.

Dividend. Declared DPS of 2.0 sen, going ex on 7 March 2023 (2QFY22: 0.2 sen). 1HFY23 dividend amounted to 2.5 sen per share (1HFY22: 0.4 sen per share). Note that the comparative figure has been adjusted for bonus issue.

QoQ. Sales inched up by +4% to RM295.3m. This improvement in performance was on the back of the year end festive promotions, school holidays and the Christmas season in the quarter. Subsequently, core PATAMI increased by +2% to RM35.5m on the back of better revenue but was slightly pulled down by the higher effective tax rate (2QFY23: 33.1% vs 1QFY23: 31.9%).

YoY. Top line staged an 8% increment thanks to the additional Starbucks stores that contribute positively. We understand that 2QFY23 registered a 10 new additional Starbucks stores with 2 being a drive through outlets. Despite better top line, bottom line was lower by -9% dragged by the compression in EBITDA margin by -4.7ppt.

YTD. Revenue surged by 26% to RM578.4m thanks to higher SSSG. Core PATAMI was bolstered by 39% due to lower effective tax rate of 32.5% in 1HFY23 vs. 37.0% in 1HFY22. From management guidance, Y TD SSSG figures were: Starbucks Malaysia (+13%), KRR (+11%), and Starbucks Brunei (+25%) vs. SPLY.

Outlook. We applaud the group’s stable performance despite the headwinds faced. We understand that this quarter was a volatile period for the group from the fluctuation in raw materials and increased in minimum wage put in place. Additionally, this year also reflect the normalisation of sales moving from pent up demand that benefitted the group last year. However, we see a pocket of opportunity from the expected Chinese tourists with the reopening of its border leveraging on its renowned Starbucks brand equity. BFood plans to open 35-40 new Starbucks stores in this financial year with 17 new stores successfully launched YTD. We opine that the group is on track to meet its specified target. Currently, Starbucks stands at 373 stores, KRR at 70 (+2 new stores) and Sala at 7.

Forecast. Unchanged.

Maintain BUY, with unchanged TP of RM1.31 pegged to 16x PE of FY23. 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 - 14 Feb 2023