Supplementary segments Jollibean and KRR experienced slower-thanexpected sales as earnings came below expectations. Maintain BUY with a lower MYR2.90 TP (from MYR3.00, 22x FY17F P/E, 25% upside) after we trim our FY16F-18F earnings. We continue to like BFood for its structural growth supported by its store expansion plans, superior earnings-yielding concept stores and an FMCG venture.

Below expectations. Berjaya Food’s (BFood) 2QFY16 (Apr) MYR6.2mnet profit took 1HFY16 earnings to MYR12.3m, ie below expectations at 30% (our) and 32% (consensus) bottomline estimates. The downside surprise was on: i) Jollibean’s store reshuffling exercise that saw a MYR300,000 loss, ii) larger-than-expected YTD same-store sales growth (SSSG) contraction of 15% for Kenny Rogers Roasters (KRR) despite remaining profitable, and iii) a lower tax shield. The latter was primarily on an inability to offset tax credit generated at holding company level, which ought to persist at a declining rate going forward. A second interim dividend (1.25 sen/share) was declared as expected, in line with payout.

Structural growth remains firmly intact. Berjaya Starbucks Coffee Co SB’s (BStarbucks) healthy 12% SSSG offset the sequential quarter’s 2% contraction, as YTD SSSG was 2%. We expect this unit, which already contributes close to 80% of earnings, to drive growth on: i) a robust 100-store expansion plan in 2016- 2019 (close to 50% rise in FY15 store count), ii) a fast-moving consumer goods (FMCG) venture in FY17(earnings contribution initially minimal at 5%, which has not been accounted for), and iii) merchandise and drive-thru concept stores contributing handsomely – up to 100% more in revenue.

Key risks. We trim FY16F/FY17F/FY18F EPS by 12%/10%/2% respectively, factoring in KRR’s and Jollibean’s slower revenue growth, and a higher tax rate. Key forecast risks: further consumer spendingslowdowns, unfavourable currency trends and higher raw material costs .

Maintain BUY with a lower MYR2.90 TP (from MYR3.00) post our earnings revision. Our valuations are rolled over to FY17 from 2016 with an unchanged 22x P/E, in line with its regional peers’ valuations (19-31x P/E). Our corroborative DCF-based valuation implies a MYR3.00 TP(Figure 5). While near-term macroeconomic headwinds underpinsupplementary segments Jollibean and KRR, BStarbucks’ long-term structural growth remains firmly intact while trading at an undemanding 17x FY17F P/E, relative to its adjusted 23% 3-year earnings CAGR (FY14-17F).