by FAYYADH JAAFAR / graphic by TMR

BERJAYA Food Bhd (BFood), a subsidiary of Berjaya Corp Bhd, has maintained its ‘Buy’ call on the stock with a raised fair value to RM5.05 a share, from RM3.30 previously.

AmInvestment Bank Bhd analyst Muhammad Afif Zulkaplly said the company’s earnings outlook remains robust, backed by Starbucks Malaysia’s ability to retain its loyal customers despite the rise in food inflation.

Starbucks Malaysia accounts for 96% of BFood’s financial year 2022 forecast (FY22F) net profit.

“We are revising our earnings forecast upwards by 34% for FY22F, 42% for FY23F and 51% for FY24F after imputing more bullish sales and margin assumptions,” he said in a statement today.

Starbucks is expected to remain resilient, underpinned by high customer retention rates and the effectiveness of the company’s strategy in generating consumer interest through switching outlet formats, leveraging third-party delivery services, and a change in customers’ loyalty reward programme.

The analyst highlighted that middle- to high-income groups, which make up the bulk of Starbucks’ target audience, are likely to be more sticky given their bigger discretionary income buffer and more resilient spending habits to offset rising costs of living.

To fight against rising raw material prices, BFood is taking a different approach compared to its peers. 

Instead of passing the additional costs to end consumers, the company is actively improving its product portfolio by pushing higher-margin products and widening offerings.

“Anecdotally, Starbucks Malaysia appears to be running more aggressive marketing campaigns to promote seasonal blended beverages, which tend to have better margins. 

“Capitalising on strong branding and customer loyalty, the brand also widened its merchandise offerings,” Muhammad Afif said.

He noted that Kenny Rogers Roasters is also seeing a rebound in sales due to its recent efforts to diversify its menu and reduce heavy reliance on one single cost item, which is chicken.

Meanwhile, the group’s new venture, Paris Baguette’s earnings contribution is expected to be immaterial in the near term as it goes through a gestation period.

“Pending the completion of SPC Group’s distribution facility in Johor (estimated in June 2023), we believe the bakery chain stores will likely have to import its key raw materials and this may limit its near-term earnings upside potential,” he noted.

Nonetheless, the analyst believed that Paris Baguette is a positive addition as it will help to extend BFood’s potential growth runway.

The group’s plan to gradually open five stores per year, for a total of 50 stores in 10 years, will keep them from making too much of an investment and give local customers a chance to get used to the Paris Baguette brand.