Maintain BUY with unchanged TP of MYR1.50 BFD is navigating through heavier cost pressures in FY23 with internal cost efficiencies and product price adjustments at BStarbucks. With this, FY23 group operating margins may ease YoY but strong sales momentum, driven by resilient demand, should keep BFD’s earnings on its positive trajectory in the near-term. Our earnings estimates, TP of MYR1.50 (20x FY23E PER, about mean) and BUY call are maintained.
Strong demand continues Based on channel checks, BStarbucks demand in 2QFY23 has been tracking internal expectations with the Dec quarter being a seasonally strong earnings contributor driven by festive sales and high store footfall. At present, c.75% of revenue comes from in-store sales while delivery and drive-thru window sales account for c.12% and c.13% respectively.
Mitigating cost pressures with price adjustments The group is facing additional cost pressures arising from higher raw material costs (milk) and unfavourable USD/MYR currency exchange (c.50% of raw materials are purchased in USD). Note that BFD’s milk costs are in MYR. To mitigate this, BFD has raised product prices for all its beverage items in BStarbucks by MYR1/item (effective Nov 2022) which translates to a 5%-10% increase in permanent beverage product ASPs. On average, beverage sales attributed to c.67% of BStarbucks revenue.
No changes to earnings estimates BFD’s outlook is positive based on its resilient product demand and unhindered ability to grow its store network amid weak consumer sentiment. That said, we believe that its recent price adjustments will only partially buffer cost increases from raw materials and the stronger USD currency as BFD tries to strike a balance between maintaining consumer affordability and defending group operating margins. Our model has assumed for higher costs to weaken FY23 EBIT margins by 2ppts YoY.
Maintain BUY with unchanged MYR1.50 TP BFD’s 2QFY23 earnings were within our/consensus expectations. We expect earnings to be stable in sequential quarters owing to the group’s resilient product demand and new store expansion. Our earnings estimates are unchanged but we lift FY23E-FY25E DPS estimates to 5sen p.a. (from 2sen p.a.), in-line with its higher payout in 2QFY23. Rolling forward valuation to FY24E, our TP remains unchanged at MYR1.50 based on an updated mean PER of 19x (vs. 20x previously).
Results in-line 2QFY23 core net profit of MYR33m (-21% YoY, -3% QoQ) brought 1HFY23 core net profit to MYR67m (+25% YoY). The latter accounted for 49% of both our and consensus FY23E. Positively, a second interim DPS of 2sen was declared, bringing 1HFY23 DPS to 2.5sen (1HFY22: 0.4sen), which was above our FY23 DPS estimates of 2sen.
Revenue growth driven by new store openings 2QFY23 revenue grew 8% YoY predominantly due to the contribution from new stores whilst BStarbucks SSSG remained flat YoY. EBIT however fell 12% YoY (EBIT margin: -4.7 ppts YoY) given higher costs from raw materials (milk) and labour. On a QoQ basis, higher sales during the Christmas and school holiday period led to a revenue growth of 4% QoQ. EBIT also grew 7% QoQ (EBIT margin: +0.5ppt) largely due to a MYR1 product price adjustment made to its permanent beverage menu at the beginning of Nov 2022 and the strengthening of MYR/USD currency. The total count for BStarbucks and Kenny Rogers Malaysia (KRR Msia) were 373 (+30 stores YoY, +10 stores QoQ) and 70 (+1 store YoY, +2 stores QoQ) respectively.
Raised FY23E-FY25E DPS estimates Our earnings estimates are maintained but we raise FY23E-FY25E DPS estimates to 5sen p.a. (from 2sen p.a. previously). Sequential quarters are expected to be stable with resilient sales demand boosted by intermittent months of festive sales (CNY, Aidilfitri) in 3Q and 4QFY. Internal operating costs are also being closely monitored in order to defend margins against further operating cost increases in FY23. Nevertheless, our model has imputed for FY23 EBIT margins to ease by 2 ppts YoY.
Substantial shareholder disposal thus far absorbed by market; holding 1.00 point of control (volume focus formed since Jan'23). If this does not hold, then 0.825 represents entire 2022 support zone, accumulation point. Starbucks still pretty busy, no issues etc.
Almost RM1B revenue FY22; preceding 2 qtr likely on track for RM1B mark this FY23. Q3'23 should cement this target achievable. Moreover full MCO pandemic recovery should already be in now. On the back of such revenue, expected they will try maintain ratio, so share price to increase and perhaps higher dividend amount. Now they declare div 6mo each, sweet if they go on to pay quarterly dividends, exceeding 50% payout ratio. Overall a good accumulate counter.
The Board of Directors (“Board”) of Berjaya Food Berhad (“BFood”) wishes to announce that its 100%-owned subsidiary, Berjaya Food (International) Sdn Bhd (“BFI”) had on 15 March 2023 acquired a total of 11.87 million ordinary shares representing about 1.07% equity interest in 7-Eleven Malaysia Holdings Berhad (“SEM”) (“SEM Shares”) from True Ascend Sdn Bhd (“TASB”), a company controlled by Tan Sri Dato’ Seri Vincent Tan Chee Yioun (“TSVT”), via a direct business transaction for a total cash consideration of about RM21.96 million or at RM1.85 per SEM Share (“Acquisition”)
The Board's decision to acquire SEM shares from VT controlled company is unfortunate. It's unfortunate because I like BJFood for its strong franchise and seemingly capable management.
This acquisition amount was about RM22 million. Not a big sum. BJFood could definitely afford given its strong cashflow.
Main Market Listing Requirements 10.08 states that "... where any one of the percentage ratios of a related party transaction is 5% or more .... a listed issuer must - ... (b) obtain its shareholder approval of the transaction in general meeting; and (c) appoint an independent adviser..."
I noted the RM22m acquisition is just below 5% of BJFood's net asset at RM498m. No EGM is required to approve the transaction. Is this RM22 million purchase amount merely a coincidence? I don't know.
The fact that VT has been actively trading both BJFood and SEM shares recently is a further warning signal for me. This is warning regardless of whether SEM represents a good investment to BJFood at RM1.85.
If the Board truly believes that BJFood generates too much cash than it could invest profitably in its own business, why don't it return the cash as higher dividends to all shareholders? Let shareholders who believe in SEM to invest themselves. BJFood is not a fund manager. Don't act like one.
This incident reminds me of Genting Malaysia buying Empire Resorts from Lim Kok Thay's family in 2020. Regardless of the synergy and whatnot given by GENM Board then, the fact remains GENM has yet to recover from the valuation discount suffered until today. Genting companies' reputation have been tainted (which is not great to start with, I must say)
For this reason I disposed the share this morning despite liking the company. BJFood has been a very rewarding investment. The share price may recover and even go higher after today selloff. But that it no longer important. I prefer to invest in companies that won't spring me with such surprises.
Though I do not have any shares in BJFood, after I sold off near RM4.80 before bonus issues, it came as a surprise to me when BJfood announced to have purchased 1.07% in SEM. I have interests in SEM and I still think SEM is undervalued at current prices or RM1.85.
It is interesting to see so much of related party transactions between Berjaya Group of companies and SEM. First it was SEM to do aggressive share buyback and push the share price to RM2.40. Then when it reached 10% max share buyback, the share price collapsed back to RM1.60 level when I picked up again after selling some at RM2.30-2.40.
Then VT himself and BJLand / BJCorp bought directly into SEM and pushed the share price above RM2.00 again. I sold out after SEM announced disappointing results for Q42022.
Now BJFood bought 1.07% of SEM from VT who still holds an effective shareholding of 35%+. I really have no idea what game they are playing here.
Something may be brewing in SEM, not sure good or bad, but I am not betting on it.
Anyway the market is weak depressed by external factors like the collapse of SVB and troubles at Credit Suisse. It may be wise to sell first and increase cash holdings in such an uncertain market that may last for few more months.
The challenge now is it's not sufficient to value these Berjaya companies based on business fundamentals alone. It has to be discounted against potential companies' actions that could go against, or perceived to go against minority shareholders' interests.
It may be OK for small investors like us, especially skillful ones like you, who could read the market and jump in and out at a moment of notice.
But funds that holds millions or tens of millions of shares could be trapped. The mere doubts of potential corporate governance issues will deter some fund managers from investing in such companies. The lack of support from big funds could in turn cap their valuation, no matter how rosy their businesses are. This is not friendly to long term shareholders. (Ironically the situation isn't too different from Daibochi, though I would argue Berjaya is a lot worse)
I fully agree on the importance of cash. The troubles at SVB and Credit Suisse reminds me of the early stage of GFC when Northen Rock, Countrywide and Bear Stearns failed. But never had I expected then that it could morph into a full blown crisis near the scale of the Great Depression.
I hope this time round we will not see another Lehman moment. However this is a game of confidence. Troubles tend to emerge from unexpected corners and panic can spread fast. Moreover, the geopolitics today is also more complex, US politics more dysfunctional, and Malaysian politics less stable.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Posted by supersaiyan3 > 2022-12-09 23:28 | Report Abuse
Up at double speed. And most who wants to sell probably have sold.