We deem  Berjaya Food’s (BFood)  1HFY15 (Apr) earnings of MYR11.0m (+13.6%)  within  our  expectations,  making  up  32.8%  of  our  FY15 earnings  forecasts.    We  maintain  BUY  on  BFood  and  its  MYR4.00  TP (43.4%  upside).  We  expect  a  stronger  2HFY15  on  the  back  of  higher earnings contribution from the full consolidation of BStarbucks, as well as stronger sales underpinned by the holiday and festive season. 

In  line.  We deem BFood’s 1HFY15  (Apr)  core earnings of MYR11m in line,  although  making up  only  32.8% and 32.0% of our and consensus FY15F  earnings  respectively.  This  is  due  to:  i)  our  FY15  earnings forecasts  factoring in  seven months’  earnings contribution from Berjaya Starbucks  Coffee  Company  SB  (BStarbucks)  as  a  result  of  the completion of the acquisition of the remaining 50% stake in BStarbucks on 18 Sep  2014, as well as ii) seasonal  factors.  1HFY15  core  earnings rose  13.6% YoY, largely due to improved earnings from BStarbucks as well as contribution from its  Brunei  Starbucks Coffee  arm.  Sequentially, 2Q15  core  earnings  slid  16.7%  largely  due  to  a  spike  in  interest expenses. Its  Kenny Rogers Roasters  (KRR) arm in Indonesia is still in the gestation  phase, having reported a quarterly  EBIT loss of MYR1.3m in 2QFY15 (1QFY15: MYR1.6m).  A first interim dividend of 2.5 sen per share was declared for the quarter under review. 

A stronger 2HFY15 awaits. We expect earnings in 2HFY15 to come in stronger,  on  the  back  of:  i)  higher  earnings  contribution  from  full consolidation  of  BStarbucks,  as  well  as  ii)  school  holidays  and  festive season. YTD, there are 182 Starbucks Coffee outlets (FY14: 170 outlets) and we believe BFood is on track to meet its aggressive expansion of 25 Starbucks Coffee outlets per year till 2019. 

Forecasts and risks.  As results were in  line, we make no changes to our  earnings  forecasts.  Key  risks  to  our  recommendation  include: i) slowdown in consumer spending, ii) unfavourable currency trend,  and iii) higher-than-expected raw material prices.  

Investment  case.  We  maintain  our  BUY  recommendation  and  TP  of MYR4.00, based on a fully-diluted 24.6x FY16F P/E. BFood is currently trading  at  an  undemanding  FY16  valuation  of  17.8x  P/E  relative  to  its 3-year earnings CAGR of 47.7% over FY14-FY17F.

Source: RHB