AFTER recording a meteoric rise for most part of 1H 2022, Berjaya Food Bhd (BFood) in which Berjaya Group patriarch Tan Sri Vincent Tan Chee Yioun holds 55.47% direct and indirect stake has suddenly found itself at the mercy of weakened consumer buying power in 2H 2022F and narrower margins on higher input and operating cost.
This has prompted CGS-CIMB Research to downgrade the most expensive stock in the BGroup’s stable to “hold” (from “add” previously) with a 24.5% slash of its target price to RM4.15 (from RM5.50 previously).
“We cut our FY6/2023-FY6/2024F revenue forecasts by 5.1%-7.3% as we anticipate slower sales growth in 2H 2022F,” projected analysts Khoo Zhen Ye and Walter Aw in a company update in conjunction with the research house’s review of Bursa Malaysia’s consumer stocks.
“However, we believe that its share price is supported by its strong ‘Starbucks’ brand equity and extensive retail presence in Malaysia. Lower-than-expected sales volume is a key risk.”
CGS-CIMB Research further attributed it turning bearish on BFood to:
- Consumers’ weaker buying power amid a rising interest rate environment, higher inflation and subsidy cuts;
- Intensified competition in the food & beverage (F&B) retail chain space (competitors embarking on aggressive expansion) with on-going price wars;
- Footfall normalising and pent-up demand dissipating nine months post re-opening in October 2021; and
- Increase in home food consumption as consumers turn to staple foods and reduce out-of-home spending amidst high inflation.
“We gather from the management that BFood raised baristas’ monthly wages to RM1,800 (20% above the minimum wage of RM1,500 from May 1) to attract and retain its workforce which would lead to higher operating costs,” revealed CGS-CIMB Research.
“Furthermore, input costs are rising (notably milk, coffee and sugar due to elevated commodity prices. We think BFood is likely to limit product price hikes in view of rising inflationary pressure.”
While BFood aims to mitigate the higher costs via higher transaction volume, the research house expects lower sales volume in 2H 2022F and higher cost structure to pressure its margins in FY6/2023-FY6/2024F.
Nevertheless, CGS-CIMB Research expects BFood to post strong 4Q FY6/2022 results in view of the recent Hari Raya festival and removal of movement restrictions.
“However, we think that 2H 2022F earnings growth outlook could be tepid on margin compression as its transaction sizes normalise in 2H 2022F, leading to lower economies of scale,” reckoned the research house.
At the close of today’s mid-day trading, BFood was down 14 sen or 3.5% to RM3.86 with 706,600 shares traded, thus valuing the company at RM1.5 bil. – July 7, 2022
