Starbucks remains backbone of Berjaya Food

The Seattle-based chain now has more US locations than McDonald

KUALA LUMPUR: CIMB Equities Research expects Starbucks to continue to be Berjaya Food’s key growth driver and it expects it to stay on its positive earnings trajectory on the back of a healthy store expansion.

The research house said on Monday BFood plans to add 25 to 30 new stores a year. Out of the 25-30 stores, approximately 10 will be allocated as drive-through outlets, which typically fetch higher margins vs. other typical outlets. 

“We are forecasting same-store-sales growth (SSSG) of 3%-5% for Starbucks Malaysia in FY18-20F, in line with management’s guidance.  

“Our earnings per share (EPS) upgrades push our end-2018F target price up to RM1.96, based on a higher P/E of 22 times (from 20 times), in line with its three-year historical mean,” it said. 

Last Friday, BFood announced that its unit Berjaya Food International Sdn Bhd was selling its entire 99.9% stake in PT Boga to Rudy Wiguna and Komelia Ersan and also pay off part of an inter-company debt totaling Rp9.6bil (c.RM3.1mil). 

The cash consideration of the disposal came up to a nominal sum of Rp1,000 (32 sen) after accounting for PT Boga’s past yearly losses and shareholders’ deficit of Rp114.6bn (RM37mil) as at August 2017.

CIMB Research was not surprised by this development as management had earlier indicated that it had been in talks with several interested parties to rationalise its Indonesia business. 

PT Boga is the operator of the chain Kenny Roger Roasters (KRR) in Indonesia and had 16 outlets as at April 2017. We understand that BFood has invested a total of RM34mil into PT Boga, which has been fully impaired to date. 

This amount also includes its initial investment of RM1.4mil it paid for the 51% stake in PT Boga. 

“We think that this is a long-term positive for the group as it moves one step closer to becoming a purer Starbucks play. 

“KRR Indonesia has been a major strain on BFood’s earnings over the past few years and reported a pre-tax loss of RM7.5mil as at FY17. 

“Thus, we upgrade our FY18-20F EPS by 6%-12% as we: i) strip out our loss assumptions from KRR Indonesia of RM4mil to RM5mil, ii) lower our interest expense, and iii) lower effective tax rates. BFood will report a one-off loss of RM13.3mil in FY18F from this disposal,” it said.

CIMB Research upgraded its call to an Add as his disposal could catalyse the stock’s share price. Further re-rating catalysts include the disposal of its loss-making Jollibean franchise and a turnaround in operations for KRR Malaysia.

Downside risks include a significant slowdown in domestic consumption and slower-than-expected turnaround for KRR Malaysia.  

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