Valuation / Recommendation

We recommend a BUY on Berjaya Food Berhad with a TP of RM1.22 based on FY24F EPS 7.6 sen and PE of 16.1x in line with the 3-years average. We like the stock for its attractive expansion plans, and strong same-store sales growth (SSSG).

Investment Highlights

More room to grow. Starbucks Malaysia is one of the largest coffee chains in Malaysia with its first store opening in Kuala Lumpur on Dec 1998. BStarbucks has a fleet of 356 stores as of 30th June 2022 in Malaysia where 70 are drive-thru stores. The company plans to open between 35 to 40 new stores in FY23 with more drive-thru outlets, targeting the smaller towns, neighbourhoods, and communities, which are more convenient for customers.

We think that new store openings which includes more drive thru stores will bode well for Bstarbucks to provide a better reach and service to customers, further expand its market share throughout Malaysia and increase profitability moving forward. We also think that consumer demand for Bstarbucks products can be enhanced via the revamped Starbucks Reward programme where customers’ experience is enhanced by offering more card designs with attractive benefits for its members. BStarbucks registered revenue of RM884.2m in FY22 (+41.4% yoy).

Bfood’s holding company, Berjaya Group Berhad effectively holds the worldwide KRR franchise following BGroup’s acquisition of KRR International Corp, USA in April 2008. The company has a fleet of 68 KRR restaurants across Malaysia as of 30th June 2022, serving rotisserie-roasted chicken complemented with other side dishes and beverages and plans to open between 3 to 5 new stores in FY23. We think that FY23 sales will be stronger, driven by optimised business strategies, attractive promotion initiatives, and waning impact of the Covid-19 pandemic. BRoasters also experienced a sales rebound after diversifying its menu and reducing heavy reliance on one cost item, recording a revenue of RM71.5m in FY22 (+29.3% yoy).

Risk factor. Key risks include intensifying competition in the food and beverage retail sector, weakening consumer buying power as a result of rising interest rates, rising inflation and subsidy cuts.

Source: Mercury Securities Research - 4 Nov 2022