Recovery in KRR a key catalyst for BFood — Analysts

KOTA KINABALU: A recovery in the performance of Kenny Rogers Roasters (KRR) is a key catalyst for Berjaya Food Bhd’s (BFood) prospects, analysts say.

“We believe earnings recovery at KRR would be a key catalyst for BFood. However, for now, we remain cautious on KRR’s earnings outlook as the could continue to face stiff competition and increasing operating expenditure (opex),” Maybank Investment Bank Bhd’s research arm (Maybank IB Research) said in a recent report.

Meanwhile, it pointed out that BFood’s fourth quarter of the financial year 2018 (4QFY18) results were above expectations as earnings were driven by stronger Berjaya Starbucks (BStarbucks) performance and reduced losses after the sale of KRR Indonesia.

“Excluding one-off negatives of RM3.5 million (forex loss, ESOS expenses), 4QFY18 core net profit was RM4.3 million (up five per cent y-o-y, up one per cent q-o-q).

“This brings FY18 core net profit to RM21 million (up 13 per cent y-oy) – at 110 and 94 per cent of our and consensus’ full-year estimates,” it explained.

Y-o-y, it noted that 4QFY18’s core bottomline growth was mainly attributed to revenue improvements at BStarbucks from new outlets’ contributions (opened five outlets in 4QFY18) and organic growth from increased in sales volume and better product mix (4QFY18 same sales store growth up two per cent y-o-y), and lower group losses post the disposal of KRR Indonesia (PT Broga) on November 23, 2017.

“This, however, was partly mitigated by KRR’s weaker performance with 4QFY18 SSSG of down three per cent y-o-y, and steeper interest cost from higher borrowings,” it said.

Meanwhile, it pointed out that BFood’s flattish q-o-q core earnings were due to the seasonally stronger 3QFY18 in conjunction with the year-end holiday season.

All in, Maybank IB Research lowered its FY19 to FY20 earnings forecasts by circa five per cent per annum after adjusting for full-year FY18 financials (interest cost, outlet count).

“We also introduce our FY21 forecasts. Our assumptions for BStarbucks in FY19 are 25 new outlets (compared with 21 in FY18) and two per cent SSSG (compared with one per cent in FY18),” it added.

The research team maintained its ‘hold’ call on the stock.