HONG Leong IB (HLIB) Research has reiterated its “buy” call on Berjaya Food Bhd (BFood) – the star performer in the Berjaya Group stable – with a higher target price of RM5.48 (from RM4.83 previously) following the company’s net profit which spiked 2.6 times to end its FY6/2022 with RM122.74 mil (FY6/2021: RM47.11 mil).
The research house attributed the achievement to strong sales momentum that surpassed the pre-pandemic level to higher transaction counts and supported by the group’s relentless effort in expanding its stores.
“We gather that 4Q FY6/2022 recorded the highest store launch with 11 new outlets, of which 45% constitutes drive-through stores,” analyst Syifaa’ Mahsuri Ismail pointed out in a results review.
“The group has taken efforts in ramping up its marketing and promotions for seasonal drinks and merchandises which command higher margins. Apart from being a strong festive quarter from Ramadhan and Hari Raya, (BFood’s) 4Q FY6/2022 was also boosted by the popular demand of Starbucks seasonal drinks, namely Acai Strawberry and Cocoa Macchiato.”
Aside from Starbucks, HLIB Research also applauded BFood’s rotisserie-roasted chicken chain Kenny Rogers ROASTERS’ (KRR) continuous improvement which almost doubled with same-store sales growth (SSSG) of +90% year-on-year (yoy).
Commenting on BFood’s record-breaking quarter in 4Q FY6/2022, CGS-CIMB Research, however, reiterated its “hold” rating on BFood on assumption that the company’s valuation has largely priced in weaker prospects. Nevertheless, the research house did raise BFood’s target price to RM4.55 (from RM4.15).
“Going forward, we are pricing in a weaker earnings outlook for BFood on margin compression as we believe its transaction sizes could decline post pent-up demand period, leading to lower economies of scale,” projected analysts Khoo Zhen Ye and Walter Aw.
“This is in addition to higher input cost pressure (eg chicken, milk, coffee, creamer and sugar) owing to elevated commodity prices and higher operating expenses (due to minimum wage hike) placing pressure on margins.”
“Moreover, weaker discretionary spending sentiment in 1H FY6/2023 could dampen BFood’s sales demand as well amidst a high inflationary environment and interest rate hike cycle, in our view,” added the research house.
At 12.27pm. BFood was down 4 sen or 0.92% to RM4.30 with 2.01 million shares traded, thus valuing the company at RM1.67 bil. – Aug 17, 2022
Main photo credit: The Edge Markets
