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KUALA LUMPUR: Berjaya Food
’s (BFood) core net earnings for the nine month ended Jan 31, 2018 (9MFY18) of RM15.7mil came in below CIMB Equities Research and the market’s expectations, making up 61% of both the full-year forecasts.
It said on Friday BFood group also declared a third interim dividend per share (DPS) of one sen, bringing 9MFY18 DPS to three sen, in line with expectations.
“The 9MFY18’s bottomline growth was boosted by the removal of its loss-making KRR Indonesia, as well as better contributions from Starbucks Malaysia.
“We cut our FY18-20F EPS estimates by 9.5-19% to account for higher operating expenses and lower contributions from Kenny Rogers Roasters (KRR) Malaysia. Thus, we downgrade to Hold from Add due to disappointing earnings,” it said.
To recap, the research house said BFood’s 3QFY4/18 turnover rose 0.6% on-year to RM164.4m but core net earnings fell 3% on-year to RM4.5m.
Stripping out the one-off RM15.3m loss from the disposal of KRR Indonesia, BFood’s 9MFY4/18 core net profit expanded 6.6% on-year to RM15.7m, falling short of CIMB Research and the market’s expectations at 61% of both the full-year forecasts.
The group’s earnings shortfall was mainly due to weaker-than-expected performances from Starbucks and KRR Malaysia.
CIMB Research said BFood’s 9MFY18’s turnover increased 5.6% on-year to RM479.6m, while core earnings rose 6.6% on-year to RM15.7m.
The group’s sales growth was mainly supported by a better showing from Starbucks Malaysia (+16 net new stores as at 9M18).
Meanwhile, the higher on-year growth in core net profit was mainly due to increased reported profits from Starbucks and the absence of losses from KRR Indonesia.
On a on-year basis, 3QFY18 on-year sales growth was mainly driven by the improved Starbucks performance due to increased new store openings.
Core pre-tax profit jumped 22% on-year on the back better profits from its Starbucks operations as well as the elimination of KRR Indonesia losses for about two months during the quarter under review (vs. 3QFY17 loss: RM2.6m).
“We cut our FY18-20F EPS estimates by 9.5%-19% to account for lower KRR Malaysia contribution and higher operating expenses.
“Going forward, we believe that the group’s FY19-20F earnings growth will continue to be driven by its coffee chain franchise on the back of new store openings (+25 stores per annum) and by the gradual improvements at KRR Malaysia as it refines its product offerings and continues to introduce various initiatives such as new product launches and lower meal pricing.
“We downgrade our call to a Hold from Add due to the disappointing earnings with a lower end-2018F target price of RM1.75. This is based on an unchanged target multiple of 22x CY19F P/E (in line with its 5-year historical mean).
“We think that its current valuations have already priced in the positives from the disposal of KRR Indonesia (removal of key earnings drag) and earnings growth from Starbucks.
“Downside risks include a substantial slowdown in domestic consumption, slower-thanexpected turnaround for KRR Malaysia operations and weaker margins from Starbucks on the back of higher operating costs (i.e. volatile forex or raw material costs). Upside risks include a quicker turnaround for KRR Malaysia and significant recovery in consumer spending,” said CIMB Research.
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