Will you buy Berjaya FOOD for the AGM RM 80 B infinite voucher?
Berjaya Food - Starting the Year Off Strong; Stay BUY
rhbinvest
Publish date: Fri, 11 Nov 2022, 12:30 PM
- Maintain BUY and MYR1.13 TP, 15% upside and c.5% FY23F (Jun) yield. Berjaya Food’s 1QFY23 results were largely within expectations, showing commendable YoY growth on the back of new store contributions, and sturdy SSSG. Trading at 16x FY23F P/E (which is around its 5-year historical mean), we believe the valuation to be attractive considering its improving fundamentals and steady earnings delivery, which is driven by its strategic expansion plans and aggressive promotions.
- Meeting expectations. BFD reported 1QFY23 core profit of MYR34.5m (-15.4% QoQ, +198.6% YoY). The results are deemed to have largely met expectations, at 28% and 31% of our and consensus full-year estimates. YoY, 1QFY23 revenue jumped +50.8%, thanks to robust SSSG across its brands (+23% for Starbucks, +65% for Kenny Rogers Roasters (KRR)), and contributions from the 33 new Starbucks outlets opened since 1QFY22, leading to earnings growth of +198.6%. Net margin almost doubled (1QFY23: 12.2% from 1QFY22: 6.2%) thanks to better operating leverage from the strong turnover. QoQ, 1QFY23 revenue dropped 2.8% due to off- season factors, with earnings declining by 15.4%, also impacted by higher operating costs and the weaker MYR.
- Outlook. We continue to commend management’s efforts in strengthening business fundamentals over the past two years, which has translated to exponential growth seen in recent quarters (in comparison to the MYR4m reported in 4QFY19 (Apr)). Moving forward, in order to mitigate cost pressures, management intends to continue with its promotions across its brands to drive revenue growth. Having abstained from hiking prices the past few quarters, we believe that the strategic increase in ASPs via the promotion of seasonal beverages and upsizing of offerings should also be effective in softening the impact of increasing costs. Elsewhere, we look forward to the group’s expansion plans – targeting the drive-through store concept, and in less-urban areas to widen its store network. Standing at 431 stores (Starbucks: 363, KRR: 68) as of 1QFY23, BFD’s expansion target remains to open 35-40 Starbucks outlets and 4-6 KRR stores in FY23F. 40- 45% of the Starbucks outlets will be the drive-through format. Elsewhere, KRR remains profitable this quarter, and management will continue to monitor underperforming stores moving forward.
- We leave our earnings forecasts unchanged, expecting a normalisation in earnings in the upcoming quarters past 2QFY23F, especially in view of the inflationary environment. Our TP of MYR1.13 implies an 18x FY23F P/E (+1SD from its mean) and is largely in line with the valuation for most of the other discretionary names under our coverage. We impute a 2% ESG premium to our TP, as BFD’s ESG score of 3.1 is above the median.
- Risks to our call include a weaker-than-expected consumer sentiment, and a drag in the expansion of BFD’s brands.
Source: RHB Research - 11 Nov 2022
Berjaya Food Holdings - Commendable Performance
HLInvest
Publish date: Fri, 11 Nov 2022, 11:46 AM
BFood reported 1QFY23 core PATAMI of RM34.7m (QoQ: -14.7%, YoY: 3x). This is within our estimates (22%) but above consensus (28%). Overall, top-line held steady despite being the seasonally softer quarter. The group is feeling the pinch on the bottom-line with increasing opex particularly from the unfavourable forex and elevated raw material prices. We applaud the group’s commendable trajectory reflected in its SSSG figure: Starbucks (+25%), KRR (+65%) and Starbucks Brunei (+45%). We updated our model for FY22 audited accounts and introduce FY25 forecasts. Reiterate BUY with higher TP of RM1.31 (from RM1.10) pegged to 16x PE of FY23 (from CY22).
Within our but exceed consensus. BFood chalked in 1QFY23 results with revenue of RM283.1m (QoQ: -2.8%, YoY: +50.8%) and core PATAMI of RM34.7m (QoQ: - 14.7%, YoY: 3x). The latter accounted for 22%/28% of our and consensus full year forecasts which we deem to be within our expectations but exceeded consensus. Note that 1Q is a historically weaker quarter for the group with the absence of festive period or long holidays.
Dividends. DPS of 0.5 Sen Declared, Going Ex on 6 Dec 2022 (1QFY22: 1 Sen).
QoQ. Top line eased by -2.8% to RM238.1m with sales from Malaysia registered a decline of -3% despite better sales recorded from other SEA countries (+1%). This is coming off from a high base effect as 4QFY22 quarter was boosted with long holiday festive period of Hari Raya and Ramadhan. EBITDA margin contracted by -4.8ppt on the back of higher operating costs incurred coupled with unfavourable forex. This in turn caused bottom line to drop further by -14.7% to RM34.7m despite the lower effective tax rate recorded (1QFY23: 31.9% vs 4QFY22: 37.6%)
YoY. Revenue leaped by 50.8% thanks to the higher SSSG registered particularly from the full quarter effect of the new Starbucks outlets opened during FY22. Encouragingly, core PATAMI improved by 3x attributable to (i) higher investment related income; (ii) KRR turnaround and; (iii) lower effective tax rate (1QFY23: -31.9% vs 1QFY22: -40.3%).
Outlook. We applaud the group commendable trajectory reflected in its SSSG figure. From management guidance, SSSG for Starbucks, KRR and Starbucks Brunei stands at 25%, 65% and 45%, respectively. BFood plans to open 35-40 new stores with targets in rural markets. To maintain its brand equity, the group will continue to review and refresh its food menu by introducing new food categories and collaborating with best-in-class culinary experts and celebrities. Currently, Starbucks stands at 363 stores (FY22: 356 stores) with 7 new stores launched in 1QFY23 with 2 new outlets are drive-through concept stores. As for KRR, a leaner concept store (68 stores currently) would enable the group to continue maintaining its profitability. The group plans to launch 9 new KRR stores in FY23 with a smaller footprint restaurant concept in high traffic secondary township areas. As for its vegan venture Sala that stands at 7 stores, the group plans to open 4 more outlets and introduce innovative new plantbased food and beverage offerings to excite customers.
Forecast. We updated our model for FY22 audited accounts and introduce FY25 forecasts. Post annual report update our FY23/24 forecasts increase by 2%/3%.
Maintain BUY, with higher TP of RM1.31 (from RM1.10) as we roll forward our valuation year to FY23 (from CY22) pegged to unchanged 16x PE. We are still positive on Starbucks which continues to grow via new outlet openings and higher sales from active promotions and continual innovative products. Furthermore, a leaner concept KRR store would enable the group to continue maintaining its profitability.
Source: Hong Leong Investment Bank Research - 11 Nov 2022