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Maintain BUY and MYR4.20 TP, 21% upside and c.4% FY22F (Jun) yield. While 3QFY22 is expected to record sequentially softer earnings, we believe 9MFY22 results will demonstrate robust YoY growth, on the back of the successful execution of solid business strategies over the past year – in addition to some elements of revenge-spending, following the relaxation of movement restrictions. We continue to like Berjaya Food for its prospects of continuous robust earnings delivery in the coming quarters, underpinned by stronger business fundamentals.
Sequentially softer 3QFY22 earnings. BFood is set to release its results later today, and we believe it will be in line with our expectations. While the results are likely to pale in comparison to the positive 2QFY22 results read- throughs – where the quarter’s outperformance was premised on seasonality factors and pent-up demand – 3QFY22 earnings should still see commendable YoY growth. Recall that 3QFY21 earnings stood at MYR11.6m and 9MFY21 at MYR33.1m, and therefore, we expect robust YoY growth for the period (an estimated MYR20m for 3QFY22 and MYR75m for 9MFY22) from successful business rationalisation efforts over the past year and effective business strategies across its brands.
Pent-up demand aside, we are positive on the longer operating hours for Starbucks in 3QFY22 and we believe it is on track to meet its FY22 expansion target of c.35 stores. We also like BFood’s aggressive seasonal promotions to boost sales, and its strategy of leveraging on alternative sales channels, focusing on drive-through store formats and food aggregators. Kenny Rogers Roasters (KRR) is expected to register another profit-making quarter following its menu revamp (which has been opportune for price- adjustments) – on track to record its first profitable year since FY16.
Labour and raw material costs. Despite inflationary pressures in the past couple of quarters, Starbucks has been able to sustain its EBIT margins at above 17%, with 2QFY22’s standing at 25.7% on the back of strong sales. That said, we can expect a slight compression in the coming quarters. While Starbucks implemented a new internal minimum wage of MYR1,800 in January, the upskilling of existing staff and improvements in productivity should keep labour costs stable.Additionally, no single raw material makes up a key component of COGS, and coffee bean prices are fixed due to the global procurement by Starbucks US, and therefore, cost fluctuations should also be manageable, in our view.
No changes to our earnings forecasts. Our FY22F earnings of MYR92m has taken into account a slightly subdued 2HFY22, with earnings likely to taper off from 2QFY22’s high base. Our MYR4.20 TP has incorporated a 2% ESG premium, and implies 18x FY23F P/E (+1SD from the 5-year mean), which is at a slight premium to its peer average, given its more exciting prospects.
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