Berjaya Food - Robust growth remains intact BUY

- We maintain our BUY rating on Berjaya Food (BFood) and raise our revised fair value to RM1.45/share vs. RM1.25/share previously. Our fair value is pegged to a PE of 13x on CY13F earnings, based on peers’ average of 14x.

- Stripping off the non recurring fixed asset write off, Bfood’s results are in line with our expectation. BFood registered a net profit of RM3mil (-39% QoQ) for 4QFY12, bringing full year FY12 earnings to RM11mil (+11% YoY). The fixed asset write off was due to the closure and relocation of the KRR restaurant located in Grand Indonesia Shopping Mall.

- Earnings growth was robust driven by increase number of KRR restaurant. In FY12, 21 KRR restaurants were opened (12 in Malaysia; 9 in Indonesia). On a sequential basis, turnover fell attributable by the busy festive period – festive sales, school holidays, Christmas, Chinese New Year – that took place in 3Q.

- BFood will be accelerating its presence in Malaysia by targeting 15 new restaurants per year to hit 200. 

- As for operations in Indonesia, BFood is expanding rapidly by growing the number of outlets to 60-70 restaurants (c. 15 new restaurants p.a.) within the next five years. We understand that it is likely to break even next year once it exceeds 20 outlets due to the fixed asset write off in FY12.

- To-date, there is a total of 88 KRR restaurants – 77 in Malaysia and 11 in Indonesia. Elsewhere, BFood is also looking to expand into other countries.

- The impending proposed acquisition of 50% stake in Berjaya Starbucks from Berjaya Corporation is likely to be completed by July 2012.  As such, we have factored in the nine months’ impact for FY13F earnings and assumed  18 new outlets per year over FY13F-FY15F earnings. 

- BFood’s balance sheet remains healthy with net cash position of RM35mil in FY12. Our earnings forecast  for FY13F-14F remains unchanged and we have introduced FY15F earnings at RM37mil.

- Management declared a second interim single-tier exempt dividend of 2.5 sen/share yesterday. In total, BFood paid a dividend of 4.5 sen/share for FY12, translating into a dividend payout of 56%, which is in line with management guidance of 40%.  

- We continue to like BFood for its growing franchise value underpinned by:- (1) Rapid expansion into the untapped market of Indonesia; (2) Potential for robust growth in Malaysia especially in urban and sub-urban areas; and (3) The impending proposed acquisition of 50% stake in Berjaya Starbucks.

Source: AmeSecurities