KUALA LUMPUR: Berjaya Food
's core net profit for the nine months ended Jan 31, 2018 (9MFY4/19) of RM22.3mil was ahead of expectations, at 89% of CIMB Equities Research and 85% of Bloomberg consensus full-year estimates.
The research house said on Friday the strong 41.9% on-year growth in 9MFY4/19 core earnings was propelled by strong Starbucks performance, and a turnaround in its KRR business.
“Maintain Add, with a higher target price of RM2.23 (24 times CY20F P/E),” it said.
CIMB Research said BFood recorded 3QFY19 revenue and core net profit growth of 9.8% and 98.1% on-year , respectively.
This brought 9MFY19 core net profit to RM22.3mil (+41.9% on-year) ahead of the research house's estimates at 89% of its previous full-year core net profit forecast.
“The positive surprise was mainly due to stronger-than-forecasted Starbucks sales growth, further aided by a turnaround in its Kenny Roger’s Roasters (KRR) operations on the back of positive same store sales growth (SSSG) and improvement in cost control,” it said.
The 3QFY19 revenue growth of 9.8% on-year was mainly driven by positive SSSG recorded by both its Starbucks (+8.0% on-year and KRR (+2.5% on-year) operations.
“We also gather that the closure of non-performing KRR outlets and better overall cost control caused 3QFY19 EBITDA margin to rise 1.8% pts on-year. The strong on-year growth in 3QFY19 core net profit was also aided by lower effective tax rates (non-tax deductible losses from KRR operations in 3QFY18),” it said.
CIMB Research estimates that BFood's KRR SSSG turned positive (+2.5% on-year) in 3QFY19 compared to negative SSSG recorded in 1HFY19, driven by its improved offerings and a simplified menu, in our view.
“We gather that BFood is focusing on optimising the cost structure of its KRR operations, having closed down a net of five non-performing outlets in 9MFY19.
“However, moving forward, we gather that BFood is looking to restart its KRR outlet expansion by an estimated eight outlets per annum,” it said.
The research house raise its FY19-21F EPS by 14.2-18.9%, as it takes into account: i) higher Starbucks sales growth and margins, ii) higher contribution from KRR operations.
It expects BFood's 4QFY19F results to benefit from net additions of Starbucks outlets and better on-year performance by its KRR restaurants.