Investment Highlights

• We maintain our HOLD call on Berjaya Food (BFood) with a lower FV of RM 1.02/share (vs. RM1.23 previously). Our fair value of RM1.02/share is based on a P/E of 17x on FY21F EPS. Our P/E is at a slight discount to BFood’s historical average 1-year forward P/E as the group would be negatively affected by the Covid-19 pandemic.

• BFood’s 9MFY20 core net profit of RM11.2mil came in at 68% of our and 49% of consensus’ full-year earnings forecasts, missing expectations.

• We cut our earnings forecasts by 7% for FY20F, 18% for FY21F and 17% for FY22F. We anticipate weak sales in 4QFY20 but its bottom line should improve QoQ, underpinned by BFood’s cost savings measures.

• 9MFY20 revenue was RM523.2mil (roughly +1.7% YoY based on our calculations). Starbucks’ revenue grew about 3.2% YoY to RM438.0mil in 9MFY20 while that of KRR’s fell 1.8% to RM62.5mil.

• We believe Starbucks’ sales improved due to new store openings in 9MFY20. Some 25 stores were added, making up 316 Starbucks stores in 3QFY20. SSSG was flattish for Starbucks in 9MFY20.

• 9MFY20 SSSG was lower by 6% for Jollibean and by 8% for KRR. Jollibean has 33 stores (+2 YoY) while KRR has 82 stores (+1 YoY).

• Comparing 3QFY20 with 2QFY20, BFood’s revenue slid 13.9% to RM158.6mil. Starbucks’ revenue dropped 12.4% to RM134.0mil while KRR’s was lower by 23.1% at RM17.7mil. Starbucks’ SSSG shrank 0.5% QoQ while KRR’s contracted 21% QoQ. Jollibean’s revenue fell 12.9% to RM5.4mil.

• The poor sales performance in 3Q20 was largely attributed to the Covid-19 pandemic outbreak which resulted in a marked reduction of tourist arrivals to Malaysia and Singapore. Furthermore, around half of BFood’s stores were closed during the movement control order (MCO) which started on 18 March 2020. The group was also affected by the circuit breaker in Singapore which affected its Jollibean operations.

• BFood’s 3QFY20 EBIT of RM5.9mil (-70.9% QoQ) brought EBIT margin to 3.7% (-7.3ppt). Starbucks’ EBIT tumbled 53.3% to RM9.8mil as EBIT margin slipped 6.4ppt to 7.3%. KRR’s dropped to a loss of RM2.2mil while Jollibean dipped to a bigger loss of RM1.3mil.

• BFood’s fixed costs are high. Hence when revenue and EBITDA dropped, the group sank into the red as it still had to incur fixed costs like depreciation and rental expenses. BFood recorded a loss before tax of RM763K in 3QFY20. Excluding the adverse impact of MFRS 16, PBT would have been higher at RM1.3mil.

Source: AmInvest Research - 2 Jun 2020