mokluhanj21, yes and these so-called analysts are likely paid more than RM10k per month. its not just about more footfall at stores but also starbucks and krr introduced many new products which are more expensive and generate high margins. ie. better sales mix and this should sustain going forward. if profit for oct-dec 2021 is 3.5x higher than oct-dec 2020, it's likely that profit for remaining quarters can be 3.5x higher y-o-y. i'm very sure TP is closer to RM5. its just a matter of time
RM 300 to get 1 food or drink......this business model can long last as the minimum salary for malaysia Just RM 1200...... The management is too greedy they can profit for ever...
THE MOST UNDERVALUED VALUATION THIS GEM HAS EVER SEEN!
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.
I'm pleasantly surprised, but still puzzled over the 3.5X 1Q22 net profit (RM38 million) as compaed to 1Q21 (RM11 million). The net profit increase came mainly from operating leverage. A 50% increase in quarterly revenue spread over a fixed cost base has boosted operating income, which then leads to 3.5X net profit.
The quarterly P&L does not disclose cost of sales nor gross profit. But from the FY2021 full year P&L, gross profit margin was about 50%. Other operating costs, mainly admin expenses + S&D expenses, were about RM270m per annum, or about RM68m per quarter. Lets assume these figures remain unchanged in 1QFY22 and 2QFY22.
For 1QFY22, revenue was RM188m. Apply a GP margin of 50%, gross profit was RM94m. Deduct quarterly fixed cost RM68m yields quarterly operating profit of RM26m, which exactly matched the reported operating profit.
For 2QFY22, revenue was RM273m. Apply a GP margin of 50%, gross profit was RM137m. Deduct quarterly fixed cost RM68m yields quarterly operating profit of RM69m, which is very close to reported operating profit of RM67m. Most likely fixed cost increased slightly due to continuous expansion.
Given financing cost and tax rate are constant over the short term, the entire 3.5X net profit of 2QFY22 can therefore be explained away with the operating leverage thanks to 2Q revenue increase.
So the key is to understand why revenue has increased sharply; and can the revenue increase be sustained.
Looking at the quarterly results over the last 6 quarters, we can find that quarterly revenues had been very stable around at RM180 million per quarter from 1QFY21 to 1QFY22, and it suddenly jumped 50% to about RM270 million in 2QFY22.
Recall during those 18 months (Jun 2020 to Dec 2021) there had been several rounds of lockdowns and opening ups. But revenue were mostly stable for the first 5 quarters. It shows the business has been greatly successful in tapping the delivery and drive through demands. There has been limited impact from lockdowns. As such, the 50% step increase in 2QFY22 revenue cannot be entirely attributed to opening up or festive seasons.
It cannot be attributed to new store opening either. Starbucks already have 300+ stores. FY2022 plan was to add about 35. On average only about 10 stores could be added per quarter. Almost all contribution must have come from sharp increase in same store sales growth.
Could it be due to menu price increase while cost remained stable? While there has been price hikes (can't recall since when), the magnitude couldn't be that large.
Better menu mix? Yes, but again doubt the effect is could be so drastic.
From the turnaround KKR and Jollibeans? I doubt so as their sizes are relatively small.
Of course, the 50% revenue increase must have come from a combination of all factors. But until we can find the deciding factors, it's hard to judge whether the 50% revenue increase could sustain or even increase from this higher base of RM270 million in the rest of FY22.
Without sustained high revenue, the 3.5X net profit will not sustain as costs will be catching up.
Any view on this?
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Posted by csan > 2022-02-13 01:13 | Report Abuse
mokluhanj21, yes and these so-called analysts are likely paid more than RM10k per month. its not just about more footfall at stores but also starbucks and krr introduced many new products which are more expensive and generate high margins. ie. better sales mix and this should sustain going forward. if profit for oct-dec 2021 is 3.5x higher than oct-dec 2020, it's likely that profit for remaining quarters can be 3.5x higher y-o-y. i'm very sure TP is closer to RM5. its just a matter of time