The Seattle-based chain now has more US locations than McDonald
KUALA LUMPUR: CIMB Equities Research maintains its positive view on Berjaya Food
after a recent meeting with the company, underpinned by an expected turnaround in its Kenny Rogers Roasters’ (KRR) (KRR) operations.
“Starbucks remains BFood’s key driver, generating the bulk of its earnings, even as it continues to expand. Reiterate Add with a higher TP of RM1.91, based on 24 times CY20F earnings versus 22 times previously,” it said. Its previous TP was RM1.83 and last closing price was RM1.34.
CIMB Research pointed out that as part of an ongoing revamp of KRR operations, BFood will be focusing on the reorganisation of menu items, which could help drive transaction volumes.
It expects the KRR operations to break even at the EBIT level by end-FY4/19F, after recording a pretax loss of RM6.7mil in FY18.
“Moving forward, we expect KRR to open a net of seven stores for FY20F (2QFY4/19: net -six stores),” it said.
As for Starbucks, this remains BFood’s major earnings driver, as one of the most popular coffee chains in Malaysia. BFood plans to open 25-30 Starbucks stores in FY19 after adding 21 net new stores in FY18.
“BFood is also looking to increase the number of Starbucks drive-through outlets, which we understand cost less in terms of rental expense as a percentage of revenue,” it said.
CIMB Research also said Jollibean recently introduced a new soy bean drink (under the Joybean brand) distributed through 7-Eleven stores and a few high-end grocery outlets.
“We also gather that Jollibean has garnered franchisee interest from a number of companies in India, the Philippines, Maldives and Singapore to open outlets. However, we do not expect significant contribution from the franchise proceeds, and only expect contribution to be realised from FY20 onwards,” it said.
The research house cut its FY19-21F EPS estimates by 4.1-4.9%, mainly to factor in increased interest costs from higher borrowings to fund the capex requirements.
Nonetheless, it still forecasts a strong FY19 core earnings growth of 28.3%, driven by continued strong performance of the Starbucks business and narrowing losses for KRR.
“We have also increased our capex assumptions to RM80mil per year (from RM40mil previously), with the bulk of the amount allocated for Starbucks expansion,” it said.
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