BFood strong 2Q lead to revision in valuation

AmInvest has changed its valuation method on BFood to DCF method from a relative valuation approach 


AMINVESTMENT Bank Bhd (AmInvest) has maintained its ‘Buy’ call on Berjaya Food Bhd (BFood) with a higher fair value of RM3.30 a share (from RM2.23/ share previously) based on revised earnings and valuation at predicted 14x price to earnings (PE) multiple for 2022. 

The bank has changed its valuation method on BFood to a discounted cashflow (DCF) method from a relative valuation approach of 17x for the financial year 2022 (FY22F) target PE, while incorporating a 3% price premium for its four-star environmental, social and governance rating. 

“We believe the DCF method better captures the medium-to-long term prospect of the company and would allow us to incorporate any key changes in the business strategy into our valuation. Our key assumptions for the DCF valuation include terminal growth rate of 1.5%, and WACC of 5.8%,” the bank noted in a recent report on BFood. 

BFood posted a net profit of RM38.9 million (+250% YoY, 234% QoQ) for the second quarter ended Dec 31, 2021 (2QFY21), which was above consensus’ expectations, Net profit for the first half of RM50.5 million (+135% YoY) made up 100% and 88% of AmInvest’s and consensus expectations respectively. 

Concurrently, BFood declared a second interim dividend of one sen/share, bringing the total to two sen/share for FY22, implying a payout ratio of 14%. 

The positive variance was due to the pent-up demand of Starbucks and Kenny Rogers Roasters’ (KRR) operations following the easing of Movement Control Order restrictions which resulted in the opening of its 14 new Starbucks outlets during the quarter and seasonal promotional activities. 

Post-results, AmInvest has increased its earnings forecast for BFood’s FY22F-FY24F by 72%, 46% and 40% respectively after assigning a more optimistic sales assumption due to the return of footfalls from the reopening of the economy; besides reversing the KRR operations through the relocation of its stores and revamp of product offerings and being supported by the opening of new Starbucks outlets. 

In addition, the surpassing performance of BFood’s Starbucks chain displayed the effectiveness of the company’s strategy in generating consumer interest through the improvements made to the Starbucks business model which demonstrated the management team’s versatility and have positioned the group for stronger outlet performances. 

The improvement made to the business model include switching up outlet formats, leveraging thirdparty delivery services, and change in customers’ loyalty reward programme, while capitalising on the reopening of the economy. 

BFood recorded a quarterly revenue of RM272.8 million in 2QFY22, which was up 57% YoY and 45% QoQ. 

Starbucks Malaysia remained the key revenue contributor at 88% of total sales (versus 2QFY21: 87%). KRR also performed better on a QoQ basis as the company’s marketing initiatives are bearing fruits. 

Furthermore, BFood reported a significantly higher profit before tax (PBT) of RM60.3 million (+249% YoY, +217% QoQ), underpinned by stronger sales and margin expansion.

PBT margin grew 12 ppts to 22% which was mainly driven by improvement in operating leverage. “BFood is on the right track to opening 38 new Starbucks outlets in FY22F. As of 1HFY22, it has opened 18 new outlets after closing two outlets, taking it total to 343 outlets nationwide. In 2HFY22, we are expecting more aggressive outlet openings,” AmInvest stated in its report.

CGS-CIMB Securities Bhd’s analyst, Khoo Zhen Ye, has also upgraded BFood’s earnings prospects on higher margin assumptions, and its target price to RM4.40. 

The broker acknowledged BFood is a strong consumer play through its Starbucks’s sturdy brand equity, strong consumer recovery play and robust earnings growth profile. 

BFood shares ended the trading week up 60 sen or 25% last Friday at RM3, valuing it at RM1.09 billion.