Art of Investments


Publish date: Fri, 18 Feb 2022, 11:41 AM

The name of the company is Berjaya Food.

The latest results released by Berjaya Food was jaw dropping. On 10 February 2022, they reported their 2Q22 (Oct - Dec 2021) profit which was 3.5x higher than 2Q21 and 3.3x higher than 1Q22.

What does Berjaya Food do? It is very simple. They operate all the Starbucks and Kenny Rogers outlets in Malaysia.

The management attributed the extremely strong results to higher footfall at their stores and profitable performance from Kenny Rogers. If you are a frequent Starbucks customer and have been to Kenny Rogers, you will realise that they have introduced new drinks and food sets which are higher priced. You will also realise that the Starbucks outlets are always crowded even in the stores which Berjaya Food has opened in the smaller towns. With higher traffic and higher priced items, you can easily imagine how Berjaya Food managed to achieve the profit they did in 2Q22.

After the Serba Dinamik case and even companies like Genetec that we have seen recently, it is very important to make sure high profits are matched with high operating cash flows. Here is Berjaya Food's operating cash flow in 1Q22:



The cash flow statement above shows that Starbucks and Kenny Rogers generated RM165 million in cash over 6 months!


How to value Berjaya Food? 

You can easily tell that the investment banks are getting the valuations all wrong. Can we annualise the 1Q22 profit to value Berjaya Food? We shouldn't. This is because 1Q22 (with year end holidays, Christmas and New Year holidays) is comparable to 2Q22 (with long Chinese New Year holidays) but is not comparable to 3Q22 or 4Q22. So how should we estimate Berjaya Food's profit for the year? We should compare 1Q22 with 1Q21. The conditions were almost identical for both quarters - year end holidays, Christmas, New Year, 1Q21 was just after MCO 1.0 was lifted while 1Q22 was just after MCO 3.0 was lifted. So if 1Q22 profit was 3.5x higher than 1Q21, profits for the next 4 quarters is very likely to be 3.5x higher than the previous year. Besides, Berjaya Food targets to open about 30-40 new Starbucks stores this year, so we shouldn't be surprised if profit is more than 3.5x higher going forward.

How much profit did Berjaya Food report in the last 4 quarters? RM48 million. If 1Q22 is 3.5x higher than the same period in the previous year, than we can expect a profit of RM168 million (48 x 3.5) in the next 4 quarters. What PE multiple has Berjaya Food traded at in the past? Its average PE since listing was 25x. See CIMB's explanation on the multiple below: 


25x is most likely not logical anymore since Starbucks is only trading at 25x in the US and Berjaya Food should obviously trade at a discount to Starbucks since they are only the franchise holder and not the brand owner. In the past, the lowest PE multiple that Berjaya Food has traded is 15x and this is more reasonable. At 15x PE and RM168 million net profit, Berjaya Food should be valued at RM6.46. At a share price of RM3.18 now, it is trading an at extremely low PE of 7x. It is a matter of time before the share price of Berjaya Food reflects its fundamentals.


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