Worst is over for Berjaya Food, says AmResearch

PETALING JAYA: AmResearch believes the worst is over for Berjaya Food Bhd (BFood) with Kenny Rogers Roasters’ (KRR) robust same store sales growth (SSSG) and the completed disposal of KRR Indonesia.

The research house said the company also benefits from a stronger ringgit.
AmResearch is maintaining a “buy” call on BFood with a fair value of RM1.91.
The valuations are pegged to a price-to-earnings ratio of 25 times FY19F, reflecting a 20% premium to its historical valuations.

“We think that it is justified as BFood has significantly enhanced earnings visibility following the disposal of KRR Indonesia, attractive growth off a low base and a stellar Starbucks brand.”

BFood reported a 15.5% rise in net profit to RM5.8 million in Q2, bringing first-half net profit 11.1% higher at RM11.2 million, in line with AmResearch and consensus estimates. The research house noted that Starbucks’ performed respectably with mid-teen growth.

“This was off sustained SSSG of 3% coupled with 9% more stores (2QFY18: 248). We expect 2HFY18 to make up for the seemingly shortfall in year to date store expansion amounting to nine stores (vs full-year addition of 25 stores).”

Meanwhile, KRR Malaysia registered a robust 8.7% SSSG for the quarter.

“Management’s turnaround efforts, specifically new marquee ‘OMG Unfried Fried Chicken’, streamlined menus and more affordable set lunches are coming to fruition.”

KRR Malaysia is expected to add three to five stores to its existing 81 stores by end-FY18.

“It has reached the tail end of its store rationalisation initiative.”

There was recognition of KRR Indonesia contribution despite disposing of the asset on Nov 24, 2017.

AmResearch is maintaining the earnings estimates for BFood as its profits have fallen in line with its expectations.