By Kenanga Research
Fair Value: RM2.13
PREVIOUSLY, Berjaya Food Bhd (BJFOOD) was a one-brand player which operated 53 outlets when it was listed in March 2011. Since then, BJFOOD has transformed itself into a diversified regional player in the food and beverage arena, driven by a string of acquisitions in 2012.
Today, BJFOOD’s network comprises of staggering 274 outlets and four core brands, including 145 Starbucks, 69 Kenny Rogers (KRR) (Malaysia), 47 Jollibean (Singapore) and 16 Kenny Rogers (Indonesia) restaurants.
BJFOOD has shown an impressive three-year revenue compounded annual growth rate (CAGR) of 26% and net profit CAGR of 29%.
BJFOOD’s earnings track record has been equally impressive, with its net profit surging from RM8.7mil in the financial year ended April 30, 2010 (FY10) to RM18.6mil in FY13 as a result of the injection of the Berjaya-Starbucks joint-venture company in July 2012 and the newly acquired Jollibean brand in Dec 2012.
Going forward, we foresee the impact to be even more pronounced in the current financial year (FY14 estimated) as both of these brands are set for meaningful full-year contributions.
Furthermore, various efforts are already in the pipeline to bring its Kenny Rogers brand to new markets such as Cambodia, Jollibean to Malaysia and China, and Starbucks to Brunei most probably in the current financial year.
In all, we expect FY14E-FY15E revenue and net profit to jump by 38%-24% and 59%-27%, respectively. Aside from its plans to open as many as 50 outlets per annum (30 new outlets have already been confirmed for FY14E), the group is also exploring the possibility of diversifying into the huge fast moving consumer goods business under the Starbucks brand. We understand that a three-year business plan has already been drafted by Starbucks Corp (US), and should this plan materialise, it could be a rerating catalyst for BJFOOD.
Target price of RM2.13 based on calendar year (CY) 2014 price-to-earnings ratio (PER) of 19 times. BJFOOD’s FY14E-FY15E net profit growth rate of 59% to 27% is higher than its peer average of 15.4% to 16.3%.
As a result of the higher than peer average growth rate, we believe that BJFOOD deserves a CY14 PER of 19 times which is in line with the peak valuations for Power Root Bhd and Oldtown Bhd (19 to 20 times) when those stocks caught the attentions of foreign funds earlier this year.
Also, BJFOOD could also be viewed a cheap proxy to Starbucks Corp (US) which is expected to grow its earnings by 22.4% yet currently trading at a premium valuation of 35 times to its FY14 earnings estimate as compared to BJFOOD’s 15.1 times currently.
By PublicInvest Research
Target Price: RM5.72
IOI CORP BHD (IOI) yesterday announced that its wholly-owned subsidiary, IOI Plantation Sdn Bhd has successfully acquired 339 million shares or 39.55% equity stake in Unico-Desa Plantations Bhd (Unico) for a total of RM396.63mil cash or RM1.17 per Unico share. In addition, the group proposes to launch a mandatory take-over offer to acquire all remaining Unico shares not already held by the group at the offer price of RM1.17 per share. The entire proposed acquisition, which will cost about RM1bil, is expected to be completed by first quarter of calendar year 2014 (1QCY14) and it is not subject to its shareholders’ approval. Pending the acquisition outcome, we maintain our “neutral” call on IOI with an unchanged target price of RM5.72.
Unico was incorporated in 1981 and has been listed on the Main Market Bursa Malaysia since 2000. According to the latest annual report, the pure upstream plantation company owns a total of 13,660ha and two palm oil mills in Lahad Datu and Kinabatangan, Sabah.
Seventy-two per cent of the total planted area of 12,700ha is mature while the remainder is immature. Its fresh fruit bunch (FFB) yield of 23.8 tonnes per ha (t/ha) is higher than Sabah’s average recorded yield of 20.4 tonnes per ha. Since the commencement of its replanting programme in 2008, bringing the cumulative replanted area to 3,579ha or 28% of its total planted area. In terms of age profile, 23% of its total planted area is under old category (above 20 years old) while 49% is in the prime age.
Given that Unico’s major plantation land is located close to IOI’s existing plantations, we think the acquisition could enhance IOI’s economies of scale and productivity in Kinabatangan and Lahad Datu’s plantation. Upon completion of the proposed takeover, it will eventually increase IOI’s plantation landbank in Sabah from its present 98,088ha to 111,748ha while total group landbank will reach 196,867ha, up 7.5%.
Comparing with the recent Felda Global Ventures Holdings Bhd’s offer price of RM74,794 per ha in the similar area and synergistic factors, we deem IOI’s enterprise value of RM74,524 per ha for Unico as fair. The offer price of RM1.17 per Unico share values the acquired company at the financial year ended March 31, 2013 (FY13) price-to-earnings (PER) of 39.6 times or 37.6% higher than its net tangible assets (NTA) of 85 sen. It is also slightly lower than the last five-day average traded price of RM1.19.
The offer is conditional upon IOI holding more than 50% interest in Unico at the closing date of the offer. The offer is not subject to approvals from IOIs shareholders.
The proposed takeover will be fully funded by its internally generated funds and/or borrowings, which will eventually increase its net gearing from 0.32 times to 0.39 times. Given IOI’s cash level of RM2bil, we do not think there is any financial issue for IOI in acquiring Unico. The acquisition, should it proceed, will increase IOI’s net borrowing position to RM5.3bil.
The proposed acquisition will help increase IOI’s total FFB production by 6% to 7%. However, based on our estimation, we think that the acquisition will not be contributing significantly to IOI’s FY14 earnings given the latter’s much larger earnings base and acquisition financing/opportunity costs will offset earnings contribution from Unico in the short-term. In addition, IOI is also expected to continue incurring additional spending in replanting the oil palm trees as 23% of Unico’s planted area is above 20 years old.