We maintain our BUY call on Berjaya Food (BFood) with a higher DCF-derived fair value (FV) (WACC: 8.7% and terminal growth rate: 1%) of RM5.05/share (from RM3.30/share previously), based on revised earnings. Our FV implies 14.5x PE, based on FY23F EPS. We are revising our earnings forecasts upwards by 34% for FY22F, 42% for FY23F and 51% for FY24F after imputing more bullish sales and margin assumptions. Starbucks Malaysia’s earnings, which account for 96% of BFood’s FY22F net profit, are expected to remain resilient, underpinned by high customer retention rates and effectiveness of the company’s strategy in generating consumer interest through switching outlet formats, leveraging third-party delivery services, and change in customers’ loyalty reward programme. Following the earnings revision, BFood is now our sector’s top pick. Leveraging on Starbucks’ strong brand equity, we believe BFood is relatively in a better position to compete in retaining consumers’ share of wallet under the current inflationary environment compared to its peers. In addition, Starbucks’ target audience of middle to high-income groups are likely to be more sticky given their bigger discretionary income buffer and more resilient spending habits to offset rising costs of living. To fight against rising raw material prices, BFood is taking a different approach compared to its peers. Instead of passing the additional costs to end-consumers, the company is actively improving its product portfolio by pushing higher-margin products and widening offerings. Anecdotally, Starbucks Malaysia appears to be running more aggressive marketing campaigns on promoting seasonal blended beverages which tend to have better margins. Capitalising on strong branding and customer loyalty, the brand also widened its merchandise offerings. The company is also taking active measures to diversify Kenny Rogers Roasters’ (KRR) offerings by reducing its heavy exposure to one single cost item i.e. chicken. The group’s new venture, Paris Baguette’s earnings contribution is expected to be immaterial in the near-term as it goes through a gestation period. Pending the completion of SPC Group’s distribution facility in Johor (estimated in June 2023), we believe the bakery chain stores will likely have to import its key raw materials and this may limit its near-term earnings upside potential. Nevertheless, we believe that Paris Baguette is a positive addition as it will help to extend BFood’s potential growth runway. The group’s strategy to progressively open 5 outlets/year, or a total of 50 stores in 10 years, will avoid potential over-investment while giving local consumers an opportunity to develop an appetite for the Paris Baguette brand. Other Key Points on Paris Baguette Joint Venture
The initial investment of RM30mil by the joint venture entity (BFood’s portion: RM15mil), will be utilised to open the first few outlets and covers the business’ operating expenses at the initial stage. The first store will be in Klang Valley and expected to commence operation by the end of 2022.
Not just Vincent Tan, even CEO Sydney Lawrance Quays has been selling shares. Maybe the company is buying back shares to avoid dilution due to ESOS. But it gives the impression that top is selling while the company maintains the share price.
I honestly don't understand the obsession with diversifying into other brands. Paris Baguette? What is that?! Even Kenny Rogers is a waste of time. CEO should be hyper-selective on which brands to introduce and commit. Don't make diversification as diworsification.
Company continues to buyback shares, while insiders from CEO to Vincent Tan continue to sell. The company buys back as if the share price is undervalued. But insiders action say otherwise. How nice. If the company has excess cash, why doesn't it distribute to shareholders as dividends instead of supporting the share price, only for insiders to take opportunity?
I think company continuous share buyback is because the company share is still under-valued and the company cashflows are very strong. After setting aside funds for organic expansion of new 38-40 Starbucks outlets of around RM60-70 million a year, BJFood still has RM200 million of free cashflows or over 50 sen per share every year. It can either declare it as dividends or buy back shares while it is still undervalued.
Berjaya Food 4Q net profit jumps 185% - August 16, 2022
The group’s annual net profit soared to RM122.7 million — the highest since the financial year ended April 30, 2015.
Quarterly revenue came in sharply higher at RM291 million in 4QFY22. This lifted the group’s annual revenue to a record high of RM997.7 million for the financial year ended June 30, 2022 (FY22).
Earnings per share stood to highest at 11.28 sen in the quarter, from 4.02 sen in the preceding year’s corresponding quarter.
The company’s latest income statement showed that profit from operations climbed nearly 144% year-on-year.
The group is primarily engaged in developing and operating the Starbucks brand in whole Malaysia and Brunei, and also the Kenny Rogers Roasters chain in whole Malaysia, as well as Jollibean, Sala KL Vegan Restaurant and various brands in Singapore.
BJFOOD (5196) Trend: To be confirm 1st destination of uptrend: reached Risk: Please do more study now, 4.90 maybe his peak already. This counter will become down trend if can't go above and sit firm above 4.70 Momentum: to be confirmed facebook @ John Richman, KLSE tour guide 大马股市旅途导游
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....