@Observatory, it is good to hear from you again in this forum.
My estimates for BJFood gross margin is 48%, not too far from your 50%. I calculated that the fixed costs were about RM35m per quarter plus depreciation & amortisation charges of RM29m = RM64m slightly lower than your RM69m per quarter.
The key to the 3.5x increase in net profit for 2QFY2022 was obviously the 50% increase in revenue in 2QFY2022 compared to 1QFY2022. The reasons given were higher priced products, Christmas seasonal promotions and re-opening of economy after covid cases went down from Oct 2021. Nonetheless, the quantum of revenue increase still took everyone by surprise, hence the limit up of share price after result announcement.
I do not think Kenny Rogers contributed much profit after turning around so it was likely to be much higher mobility of customers in Q2 supported by continued strong sales from drive-thru and takeaways.
If this is really the factor, then we may expect lower earnings in coming Q3 and Q4. Maybank IB said that Jan 2022 sales had come down c.10%, so earnings may take a larger hit. Q4 will be worse as there will be one month of puasa before Hari Raya.
Yet, BJFood earnings for FY2022 will still be remarkable and more so on its cash flows. It generated about RM116m of free cash flows (before capex) in H1FY2022 which was exceptionally strong. The company managed to pare down borrowings in 1H by RM116.88m to just RM191m.
Just imagine that if 2H earnings can maintain at RM50m, full year cash flows may exceed RM230m which may be used for expansion and debt repayments. Assuming an average of RM70m will be used for expansion, then there will be RM160m free cash flows available for dividends.
The current debt level is quite optimal hence further debt repayment will not be as aggressive as in 1HFY2022. Free cash flows may be over 40 sen per share!
On short term share price movements, I expect some further upside to RM3.60-3.80 supported by company share buyback. On the flip side, major shareholder Vincent Tan has been selling its stakes together with other directors.
So there will be downside risks after the almost 70% surge in share price in past few weeks. Trade with caution!
I am not very smart numbers-wise but 7 days of company share buyback in Feb22 of total 1.7 million shares, worth total purchase of RM4.973 mil (last price at RM3.43/share on Feb 18). This is equivalent to ~2.23% of remaining public float (discounting "friendly" shareholders like Motivasi Optima, REdtone, DYMM, LBH and several institutionals)
--- That's the background + growth in SSSG (new stores/ drivethru sales) and cost controls since late 2020..
Yes I agree with @dragon328 that the upside may be there (and I think may even be sticky at around this price)
Depends if TSVT keeps selling or not but fundamentally, I think a good long term play for HODLers
All in all, I would monitor execution of BJFood under new Group CEO. If execution continues, then worthwhile to hold for LT value creation.
--- Downside risks: 1. spike in Malaysian Equity Risk Premium (due to spike in US terminal rate) hence discount rate - affecting DCF valuation due 2. compression in margin due to cost creeping up in commodities
(NOT INVESTMENT ADVICE- Just thoughts from a young padawan) TQ
It's nice to hear from you too. First I have to thank you for previously mentioning the FCF of BJFood. It prompted me to study and invest before current price run-up.
Thanks also for the further sharing.
May I clarify on your free cash flow calculation above? The way I understand is FCF is defined as the leftover of operating cash flow after capex. For BJFood, we need to consider the effect of MFRS16.
The operating cash flow for the 1HFY22 was RM165.355m. The figure was derived after adding back the depreciation of right-of-use assets of RM17.550m.
Therefore, when calculating FCF, the operating cash flow should be net off not just against capex, but also payment of the lease liabilities. The principal portion of lease liabilities was RM34.57m. But how to work out the interest portion of the lease liabilities? The financial statement only discloses the total interest paid which is RM13.543m. The amount is made up of both interests for operating lease and bank borrowings.
How did you arrive at 1HFY22 free cash flows (before capex) of RM116m? Did you make the conservative assumption that the entire RM13.543m of interest paid was for operating lease, and therefore the full amount was to be deducted from operating CF?
BTW refer to AGM minutes Q2, the annual capex will be about RM90m.
Based on your estimate of full year cash flow (before capex) of RM230m, netting of RM90m capex, it still leaves RM140m or 36 sen FCF, about 10% to 11% yield at prevailing price.
Your comment on optimal debt level also prompted me to do some calculation.
If lease liabilities are ignored, total borrowings will be only RM106.419m + RM85.713 = RM192m. The gross debt to GDP is 192/426 = 45%, which seems reasonable given this is a business with strong cash generation.
However, if lease liabilities are added, the total borrowings will increase to RM561m. Gross debt to GDP becomes 561/426 = 132%, which seems a bit high to me.
I also extrapolate 1HFY22 results to calculate the interest coverage ratio.
Interest coverage ratio = EBIT / interest = (PBT + Interest)/ Interest = (RM79.289m + RM13.665m)/ RM13.665m = 6.8 times. This is above my rule of thumb of borderline at 5 times, although not much higher.
I fully support shares buy back if company has excess cash and the share price has been undervalued.
What I don't understand is the timing of current buy back.
The management would have already known the impressive results of 2QFY22 by Dec last year. Why didn't they do a buy back then at around RM2 instead of buying now at RM3?
Besides the current share buyback that coincides director selling gives a bad impression.
Company uses common shareholders' fund to buy back shares. Not when share price was RM2, but only when it was above RM3....
Meanwhile director/ major shareholder, who appointed the management, are taking opportunity to dispose at higher prices, partly thanks to the shareholders' funded buyback.
Company's image is tarnished from the eyes of institutions. Otherwise it could have deserved a higher valuation at this era of ESG.
Any shareholder should rightfully be concerned. And judge they should.
Of course punters who only look at the price chart don't care, and likely fail to see the connection too...
______________________________________________________________________________ donnybelowski Who cares? Kakakaka. TSVT is also selling. Honest transaction. Who are u to judge?
@ Observatory, ya free cash flows are usually defined as operating cash flows after capex. But if a company is embarking on aggressive expansion, I tend to exclude the expansion capex to see how a normal year free cash flows will look like.
How I derived free cash flow of RM116m before capex? I simply used the operating cash flows of RM165.4m minus interest costs of RM13.5m minus payment of principal portion of lease liabilities of RM34,6m minus hire purchase payment of RM1.0m.
I just used the entire amount of interest costs of RM13.5m which has included both the interest portion of lease liabilities and interest costs of bank borrowings. Both interest cost items need to be deducted from operating cash flows.
Even we allocate RM90m of expansion capex for 2022, the company will still have RM140m of free cash flows for debt repayment and dividend distributions, or 36 sen of FCF or 11% of current share price.
Late last year when I calculated out the FCF before this exceptional quarterly result, I estimated operating cash flows of RM160m-180m before capex. I assumed capex of RM60m, leaving FCF of RM100-120m or 25-30 sen per share. The share price then was trading at about RM2.00, so FCF was estimated at 12.5%-15.0% of share price making it a steal.
On its debt level, I do not think we should add in lease liabilities which are mainly long term asset lease / rental commitments. To me these are more of operational cost nature than debt nature.
The debts have been pared down to RM192m. Assuming 5% interest p.a., borrowing interest costs may come up to RM9.6m a year. With free cash flows over RM100m per year, interest cover ratio will be well over 10x, very comfortable.
That is why I thought the company does not need to carry out aggressive debt repayments in coming months.
Other stocks with strong cash flows are AEON, DKSH, Media Prima and YTL Power. You may take a look at them. Each has some issue of their own and hence share prices are still at depressed level. Only DKSH has run up after reporting 2 quarters of strong earnings and cashflows.
@dragon328, thanks for the sharing again. You've mentioned DKSH and Media before. The other two are new.
I don't know them in depth. But as you said, each has issue of its own. My first thought about Media is its major shareholder, where my impression isn't positive (but same can be said about Berjaya).
As for Aeon, based on the little I know, its share price was on downtrend for several years as then key shareholder Aberdeen continued to sell, though this was already past. I believe post Covid malls could reinvent themselves and co-exist in the era of e-commerce. My impression is mall business is asset heavy. Since you've mention I want to make sure to check their cash flows.
YTLP is interesting. The excitement of ElectraNet disposal seems to be waning. Simple comparison of the SOP value calculated by analysts, updated with the disposal gain, seems to indicate current market cap is rather low. However, a lot of its value come from Wessex Water and Power Seraya. It also has a lot of debt. I'm not sure how to estimate values of Wessex and Seraya with reasonable accuracy, such that after deducting the huge debt, the remaining value still indicate good bargain.
They need some money to expand more outlets, where they will find the money n they don’t like bank loans! Rights plus sweeter Bonus issues?? Time to explore opportunities?? Yes?
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Posted by dragon328 > 2022-02-19 17:15 | Report Abuse
@Observatory, it is good to hear from you again in this forum.
My estimates for BJFood gross margin is 48%, not too far from your 50%. I calculated that the fixed costs were about RM35m per quarter plus depreciation & amortisation charges of RM29m = RM64m slightly lower than your RM69m per quarter.
The key to the 3.5x increase in net profit for 2QFY2022 was obviously the 50% increase in revenue in 2QFY2022 compared to 1QFY2022. The reasons given were higher priced products, Christmas seasonal promotions and re-opening of economy after covid cases went down from Oct 2021. Nonetheless, the quantum of revenue increase still took everyone by surprise, hence the limit up of share price after result announcement.
I do not think Kenny Rogers contributed much profit after turning around so it was likely to be much higher mobility of customers in Q2 supported by continued strong sales from drive-thru and takeaways.
If this is really the factor, then we may expect lower earnings in coming Q3 and Q4. Maybank IB said that Jan 2022 sales had come down c.10%, so earnings may take a larger hit. Q4 will be worse as there will be one month of puasa before Hari Raya.
Yet, BJFood earnings for FY2022 will still be remarkable and more so on its cash flows. It generated about RM116m of free cash flows (before capex) in H1FY2022 which was exceptionally strong. The company managed to pare down borrowings in 1H by RM116.88m to just RM191m.
Just imagine that if 2H earnings can maintain at RM50m, full year cash flows may exceed RM230m which may be used for expansion and debt repayments. Assuming an average of RM70m will be used for expansion, then there will be RM160m free cash flows available for dividends.
The current debt level is quite optimal hence further debt repayment will not be as aggressive as in 1HFY2022. Free cash flows may be over 40 sen per share!