Berjaya Food at brink of revival, says AmInvestment Research

RHB Research says Kenny Rogers Roasters (KRR) stores have the potential to turn around.

KUALA LUMPUR: Berjaya Food (BFood) is at the brink of a turnaround and this prompted AmInvestment Research to upgrade its recommendation to Buy from Hold. 

“Our higher fair value of RM1.77 a share (from RM1.43) is pegged at a higher price-to-earnings (P/E) of 25 times, reflecting a 20% premium to its historical valuations from our previous P/E peg of 18 times,” it said. 

Last Friday, AmInvestment Research said it came away enthused from its recent meeting with Berjaya Food’s new management team.

“The strategic direction over BFood’s non-performing assets is constructive as we eagerly await its fruition,” it said. 

The research house said the higher fair value was justified as BFood is on the cusp of revival independent of a potential restructuring exercise, attractive growth off a low base and a stellar Starbucks brand. 

Sydney Lawrence Quays resumed the CEO role at BFood in June 2017. It follows the departure of Datuk Francis Lee to Bermaz Auto. 

Prior to his new role, Sydney was head of BFood Starbucks and to our understanding, was pivotal in introducing the American brand to Malaysia 19 years ago. 

“We are positive over his invaluable operational and marketing prowess seen with Starbucks applied to Kenny Rogers Roasters (KRR) with his now sweeping influence as group CEO. •

“His immediate strategy to revitalise Bfood revolves around a three-pronged strategy which includes: i) disposals of Jollibean and KRR Indonesia, which saw losses of RM9.3mil and RM2.5mil respectively in FY17; ii) paring down of debt (net gearing: 60%) and lowering of effective tax rate (75% in FY17) and iii) a turnaround of KRR Malaysia,” it said.

AmInvestment Research said there have been market expectations over BFood disposing of its non-performing assets over the past year or so. 

However, BFood appears to have a renewed sense of optimism over the sale of non-performing assets.

 Likewise, the research house is eagerly awaiting it coming to fruition. Independent of write-offs, FY18/FY19 earnings could be lifted by 19%/25%.  It also sees the potential sale of the assets to lift sentiment and catalyse BFood’s valuations. 

“Although BFood looks to turn around KRR Malaysia instead of selling it, we are nevertheless comforted that the initiative is driven by Sydney’s capable hands. 

“The turnaround in KRR Malaysia involves: i) menu rationalisation, which would reduce wastage and inventory while simplifying processes; ii) aiming for affordability with the lowering of prices from an average of RM30 to RM14; and iii) introduction of cafeteria-style service instead of table service which would reduce error and labour headcount,” it said. 

These in-service changes would be on the back of an anticipated expansion of five to six stores over FY18F, of which two are slated for Resorts World Genting.  

“Independent of the restructuring exercise, we regard BFood on the brink of a turnaround.