AS Berjaya Corp Bhd (BCorp) struggles to find its “point of equilibrium”, Berjaya Food Bhd (BFood) has forged ahead to be a star performer in the Berjaya Group stable.
In its latest assessment of the company, CGS-CIMB Research expressed upbeat on BFood’s prospects by anticipating a double-digit same-store-sales-growth (SSSG) year-on-year (yoy) in 2H FY6/2022F to be driven by higher consumer spending and footfall recovery, especially from its Starbucks and Kenny Rogers’ Roasters (KRR) segment.
“While BFood shared that sales momentum in 3Q FY6/2022F remains on a healthy trajectory thus far, it might not be as strong compared to 2Q FY6/2022 when it benefitted from pent-up demand and peak season traffic,” analysts Khoo Zhen Ye and Walter Aw pointed out.
“That said, we believe BFood’s prospects remain solid as Malaysia’s borders re-open on April 1 as the country transitions to the endemic phase with further relaxation in dine-in and social restrictions as well as longer operating hours.”
CGS-CIMB Research further understood from BFood that a large portion of its RM300 mil capex over the next three years will be allocated for store expansion, particularly its Starbucks stores with a target of 25-30 new openings annually in urban and sub-urban areas.
Additionally, BFood also intends to increase the proportion of Starbucks drive-through outlets to circa 30%-40% of its total store network over the same period from the current 19% (or 65 outlets) which are contributing circa 30% of revenue at this juncture.
“We are positive on this as the average transaction size for the drive-through format is typically higher and able to aid margin expansion, thus shortening the payback period of two to two-and-a-half years (vs three to four years for traditional stores),” projected the research house.
“BFood targets to open 16-18 new Starbucks and three to five new Kenny Rogers’ Roaster outlets in 2H FY6/2022F.”
Against the backdrop of circa 55% of Starbucks’ raw materials (eg. coffee, tea and cream) being procured from its brand principal in the US, CGS-CIMB Research expects the impact of rising input costs to be manageable given the ability to negotiate long term fixed-price contracts on certain commodities such as coffee.
“The group is also actively reviewing its local sourcing to ensure competitive prices,” noted the research house. “BFood expects minimal impact from the minimum wage hike which could be more than offset by its higher revenue growth trajectory and greater economies of scale.”
Deeming BFood as a “strong re-opening play”, CGS-CIMB Research reiterated its “add” call on the company with an unchanged target price of RM4.40 which if achieved, would make BFood the priciest of Berjaya Group’s listed entity.
“We like BFood for (i) its Starbucks’s strong brand equity; (ii) greater beneficiary as a re-opening play; (iii) its robust earnings growth profile with a three-year earnings per share
(EPS) compound annual growth rate (CAGR) of 20.3% (FY6/2021-FY6/2024F); and (iv) Kenny Rogers’ Roaster’s sustainable turnaround,” added the research house.
At the close of today’s mid-day trading, BFood was down 2 sen or 0.58% to RM3.40 with 389,000 shares traded thus valuing the company at RM1.32 bil. – March 24, 2022
