Monday, 11 March 2013

Berjaya Food - Better-than-expected contributions

-  We re-affirm our BUY conviction on Berjaya Food (BFood), with an unchanged fair value of RM1.55/share, based on our DCF valuation.

-  BFood recorded a net profit of RM7.9mil in 3QFY13, bringing 9MFY13 figures to RM14mil or a voluminous 60% growth YoY. This was above our expectation, constituting 90% of our forecast.

-  The key variance to our forecast stems from better-than-expected contributions from Jollibean Food Ptd (JFPL). The PBT guarantee of RM0.65mil has been met.

-  Revenue jumped 40% QoQ and 11% YoY – attributed to stronger earnings from Kenny Rogers Roaster (KRR) and Starbucks, thanks to the year-end festive seasons, school holidays and Christmas.

-  In addition, Starbucks’ and JFPL’s contributions were reflected in 9MFY13 (+60% YoY). Nonetheless, EBITDA margin shrank to 12% from 17% as KRR Indonesia has not achieved break-even point.

-  The acquisition of JFPL was completed on 7 December 2012 for S$7.5mil (c.RM19mil) cash. In tandem with the group’s guidance of lower dividends for FY13F towards gearing up for expansion, dividends declared to-date amounts to 4.0sen/share. This is above its historical payout ratio at 40% of earnings.

-  All in, we have fine-tuned and revised upwards our estimates. Earnings are now expected to grow by 71% to RM19.7mil in FY13F, to reflect stronger contributions from JFPL as well as additional KRR and Starbucks openings during the year.

-  Meanwhile, FY14F and FY15F earnings are expected to grow by 61% and 20%, respectively. Main key revenue drivers are:- (1) Full-year contributions from JFPL and Starbucks as an associate; (2) Jollibean’s accelerated expansion in Malaysia and China; and (3) Break-even of KRR Indonesia in early FY14F.

-  In light with Jollibean’s expansion in Malaysia – one outlet each in Berjaya Times Square, Sunway Pyramid and The Curve – are earmarked to open by 1QFY14F. Two more outlets are currently in the pipeline. JFPL, on the hand, is in negotiations with prospective landlords to open 5 additional outlets in Singapore.

-  To-date, the total outlets for KRR Malaysia, KRR Indonesia, Starbucks and JFPL Singapore amounts to 70, 16, 141 and 50, respectively.

-  Positive and favourable prospects for BFood remain intact. Exciting plans have been mapped out, backed by a strong growing franchise value, equity brand and supportive operating dynamics. Coupled with its regional presence, we project a healthy 3-year earnings CAGR trajectory of 47%.

-  The stock is trading at a fully-diluted PE of 11 FY14F, within its historical PE band and below its average PE of 15x.

Source: AmeSecurities

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