Analysts wary of Berjaya Food’s ability to turn around loss-making segments

KUCHING: Following a meeting with Berjaya Food Bhd’s ( Berjaya Food) management, analysts are neutral on the group as they are wary of its ability to turn around loss-making segments.

According to AmInvestment Bank Bhd (AmInvestment Bank), the research firm is positive on the growth of Starbucks Malaysia and the expansion plans that are slated for Berjaya Food’s segments.

However, the research firm also said that it is “wary of its ability to turn around loss-making segments, which have weighed down earnings in recent years”.

AmInvestment Bank noted that Starbucks Malaysia makes up circa 79 per cent of total revenue.

It further noted that Berjaya Food is planning to open 25 to 30 new Starbucks stores and out of these, about 13 will be drivethrough stores, two reserved stores while the rest will be the core stores.

“As of now, there are a total of 39 drive-through stores, seven reserved stores and over 200 core stores,” the research firm said.

“Additionally, Berjaya Food plans to open 50 Starbucks kiosks at Petronas petrol stations as part of their partnership.

“We are positive on this as the drive-through stores rake in the highest margin, followed by the core store and the reserved store.”

On a side note, with coffee beans accounting for some eight per cent of Starbucks’ total cost of sales, AmInvesment Bank’s sensitivity analysis suggested that a five per cent decline in the price of coffee beans will improve Starbuck’s profit before tax ( PBT) margin by 0.2 percentage point ( ppt), resulting in a two per cent increase in PBT.

The research firm thus expected Starbucks’ same- store sales growth in financial year 2019 (FY19) to continue at circa 1.9 per cent and it estimated a 14 per cent rise in Starbuck’s gross profit.

On Kenny Rogers Roasters ( KRR), AmInvestment Bank highlighted that this segment contributes circa 15 per cent of total revenue.

The research firm also highlighted that the group has closed down three KRR restaurants in the first quarter of FY19 (1QFY19) but plans to open two new KRR restaurants and four KRR express outlets in FY19.

“Berjaya Food has also revamped the management of KRR to improve internal efficiencies to facilitate its turnaround.”

Although the research firm opined that Berjaya Food has the ability to reduce the losses of KRR’s current operations, the opening of new KRR stores may incur additional cost which will affect the group’s bottom line.

“Moving forward, we expect KRR’s loss before tax to be narrowed to RM1.8 million, versus loss of RM6.7 million in FY18.”

As for Jollibean Singapore, AmInvestment Bank said that Berjaya Food has shuttered one store in the first half of FY19 (1HFY19) but plans to open six new kiosks on top of the group’s current 31 kiosks.

“Management has also recently revitalised the branding and now offers new products. Berjaya Food will offer Jollibean for franchising although contribution from this is expected to be minimal.”