Boycott impacts BFood

Speed bump: A file photo of a Starbucks outlet in Penang. BFood will be able to offset a temporary drop in its earnings with the opening of new branches, say analysts.

PETALING JAYA: Malaysians boycotting Starbucks outlets will have an impact on Berjaya Food Bhd’s (BFood) near-term sales, but its long-term earnings trajectory remains positive given its strong brand equity.

“We believe this boycott would affect BFood’s near-term sales, especially in the second quarter of its current financial year 2024 (FY24) and weigh on its share price until the call for boycotts dissipates.

“We outline various scenarios based on the revenue decline. Assuming a three-month impact, we estimate a 15% decline in FY24 sales, which would translate into a 30% decline in FY24 core net profit versus our current estimates of RM107.9mil,” said CGS-CIMB Research in a report yesterday.

It noted that this would place BFood on an 18 times core FY24 price-to-earnings (PE) ratio, a discount of 16% to the research house’s consumer discretionary sector’s 2024 PE of 21.4 times.

CGS-CIMB Research reiterated its “add” call on BFood with its Gordon Growth Model-based target price of RM1.

“We remain positive on BFood’s long-term earnings trajectory, given its strong brand equity as we estimate the company to revert to earnings growth of 3.6%, 12.5%, 10.3% in FY24, FY25, FY26, respectively, driven by revenue growth of 3% to 8% via higher Starbucks store openings and a recovery in margins as lower input costs ease meaningfully from the second half of FY24 onwards.”

Meanwhile, Hong Leong Investment Bank (HLIB) Research expects BFood to face dampened margins moving forward due to pressure from foreign exchange (forex) fluctuations.

“We laud its highest revenue recorded of RM1.1bil in FY23. However, the diminishing base effect and cost pressure caused the bottom line to be compressed. We understand that the raw-material cost savings were offset by unfavourable forex fluctuations coupled with increase in labour costs,” it said.

The research house noted that more than 55% of the costs purchased from the principal Starbucks International are denominated in US dollars.

HLIB Research adjusted its FY24 and FY25 forecasts downward by 28% and 25%, respectively, to account for forex pressure and softer consumer sentiment.

It downgraded BFood to “hold” from a “buy” call, lowering its target price to 70 sen from 97 sen after the earnings adjustment.

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