- We re-affirm our BUY recommendation on Berjaya Food (BFood), with an unchanged fair value of RM1.55/share, based on a 10% discount to our DCF value. We have changed our valuation methodology to incorporate better earnings reflecting given the group's expansion phase.

- Talks with management suggest that Jollibean Expansion in Malaysia has been kick-started. Three company-owned sites have been identified - Berjaya Times Square, The Curve and Sunway Pyramid 1. These kiosks measure 200sf each and are targeted to open in 1QCY13F. Our earnings model assumes 30 licensee-owned kiosks and 5 companyowned per annum.

- Cost of investment (inclusive of capex, administrative fee and a one time-off licensing fee) for Jollibean's Malaysia licence is circa RM250K for a 200sf kiosk, while for a kiosk measuring between 200sf-250sf, it is circa RM300K. Capex is estimated at RM150K and administrative fee is circa 10% of capex.  One-time off licensing fee ranges between RM70KRM90K. In addition, the licensee is required to pay the group 5% of sales for royalties and 1% of sales for advertising and promotions. On the flipside, one-month inventories will be provided to the licensee on the first month of opening. 

- Together with Berjaya Group's experienced team in China, Jollibean's foray into China will initially focus on Shanghai and Guangdong Province, with a gradual expansion into other areas. This will be on a licensing basis only. We have incorporated 30 new kiosks per annum. Bottom line contribution is expected to flow in by FY14F.

- Meanwhile, five sites are in the pipeline for Jollibean Food Pte Ltd (JFPL) in Singapore. These are mainly located at the new MRT stations given the recent completion of the "Circle Line". Three unprofitable outlets are in the midst of being closed down. 

- Management highlighted 3Q earnings are healthy stemming from school holidays and festive seasons. Kenny Rogers Roasters (KRR) Indonesia is now expected to break even by 1HFY14F, instead of by end- FY13F as guided earlier given the slower-than-expected sales. Underpinned by a well-established equity brand, we understand that Starbucks continued to achieve a double digit same-store-sales growth of circa 20% in 3Q. 

- Elsewhere, management continues to keep an eye on Indochina to accelerate KRR's expansion. More importantly, management is actively looking for potential and value-accretive F&B businesses to further strengthen growth and position the company as a regional F&B player.

- All in, we remain positive on BFood for its bright  growth prospect driven by a growing franchise value business model (KRR, Starbucks, Jollibean, Sushi Deli, Kopi Alley and Dango), coupled with a regional presence. The group is set to drive a robust 3-year CAGR of 46% in FY15F. 

- The stock is trading at a fully-diluted PE of 14x FY14F, within its historical 5-year PE of 11x-19x and slightly below its average PE of 15x.

Source: AmeSecurities