Berjaya Food - Growing positively BUY

- We re-affirm our BUY recommendation on Berjaya Food (BFood), with an unchanged fair value of RM1.55/share, pegged to a PE of 23.5x to our fully diluted CY13F earnings, offering 15% return.

- BFood posted sequential earnings (+72%) for 2QFY13 at RM4mil. This brings its cumulative 1HFY13 earnings to RM6mil (+37%). This came in below our and consensus’ estimates.

- As such, we trimmed and fine-tuned our EPS assumption by 24%-38% for FY13F-FY15F. We have lowered our Starbucks’ outlets assumption to 145 stores by end-FY13F with an SSSG assumption of 17%, based on the latest guidance by management, as opposed to 155 outlets. Thereafter, we continue to assume 15 new outlets per annum.

- Additionally, given that management is confident to achieve SSSG of 9% for Kenny Rogers Roasters (KRR), we assume SSSG to continue at this level for FY13F-FY15F. Management highlighted that KRR in Indonesia is likely to break-even early FY14 instead.

- We now expect earnings to grow by 39% in FY13F to RM15mil and expand by 92% in FY14F, driven by earnings contribution from Starbucks, recent acquisition of Jollibean Foods Pte Ltd (estimated to contribute 28% of revenue) and expansion of Jollibean into Malaysia and China.

- A dividend of 1.5sen was declared, representing dividend yield of 1.1%. As noted, lower dividends are expected for FY13F, as the group is gearing up for expansion of Jollibean, which was completed on 7 December 2012. Further out in FY14-FY15F, dividends are expected to revert back to at least 40% of earnings.

- YoY, the higher revenue was due to higher sales from additional KRR restaurants Malaysia and Indonesia as well as full quarter contributions from Starbucks. We understand that SSSG for Starbucks was 23% in the 2Q. Sequentially, the lower revenue (-5% QoQ) was affected by the Muslim fasting month that started in the last week of July and continued throughout the entire month of August. 

- We expect a stronger 3Q backed by school holidays and festive season. Note that 3Q is a seasonally stronger quarter. Balance sheet is still strong with zero borrowing. Net cash at end-1HFY13 stands at RM32mil.

- We remain positive and favourable on BFood for its bright growth prospect ahead underpinned by a larger F&B portfolio (KRR, Starbucks, Jollibean, Sushi Deli, Kopi Alley and Dango) and a growing franchise value business model. BFood is set to drive a healthy 3-year CAGR of 46% in FY15F. 

- The stock is trading at fully diluted 15x FY14F PE, on parity to its average PE of 15x.

Source: AmeSecurities