-  We reaffirm our strong BUY conviction on Berjaya Food (BFood), with a higher fair value of RM2.30/share, vs. RM1.55/share previously, based on DCF derived valuation.

-  We have removed the 10% discount assigned to our DCF value, to reflect imminent earnings from recent acquisitions. More importantly, it also mirrors BFood’s ascendancy and surging prospect as a premier regional F&B player in the consumer sector.

-  We came away from a recent visit with a more upbeat view given BFood’s infrastructure building phase for future growth. Market capitalisation is almost reaching RM500mil, which should trigger a broadening of institutional interest. The lack of quality consumer names in the market and the return of inflationary expectations should underpin strong buying interest.

-  Armed with recognised F&B brands, we estimate a three-year earnings CAGR of 32%. Bulk of FY14F earnings growth (+58%) continues to come from Kenny Rogers Roaster (KRR) Malaysia coupled with full year earnings contribution from Starbucks and Jollibean Food Pte Ltd (JFPL). FY15F earnings are projected to grow by 21% as KRR Indonesia gradually gains momentum upon breakeven and we introduce FY16F earnings at RM42mil (+20%).

-  BFood continues to diversify KRR to build brand acceptance. KRR Malaysia’s price increase (+5%) from FY14 onwards, on top of menu makeover, is expected to catalyse stronger average ticket size and to drive positive same-store-sales growth (SSSG).

-  Whilst we foresee a gradual SSSG deceleration for KRR Malaysia from a large base in a fairly matured market, the big push into Indonesia would offer greater growth potential as operation approaches breakeven in FY15F, coupled with scaling up of expansion. KRR Indonesia earnings contribution is expected to outstrip Malaysia in the long run. On a more exciting note, AEON’s rapid expansion in Indonesia would help KRR broaden store count momentum by riding on AEON’s network of new malls.

-  BFood offers an attractive direct leverage to Starbucks Coffee – Starbucks Corp (SBUX US Equity) which trades at a high 35x PE. Supported by Starbucks’ robust domestic double digit SSSG track record and its exponential expansion, it is trading at a discount given the premium coffee brand, in our view. Further regional inroads into Brunei (80% BFood-owned) bode well to enhance earnings in the medium to long term.

-  BFood has a strong balance sheet and cash pile of RM18mil as of FY13. Its debt free position can support the group’s expansion programme and/or acquisition. At current levels, dividend yield is forecasted at 2.5%-3.6%, represents payout of ~40%.

-  The stock is trading at 20x FY14F fully-diluted PE, within its historical range of 11x-21x.

Source: AmeSecurities