Bfood to expand Starbucks network across the country

PETALING JAYA: Berjaya Food Bhd (Bfood) is expected to post lower earnings in its financial year 2023 (FY23), no thanks to weaker consumer spending and higher raw material prices.

CGS-CIMB Research is expecting a weaker earnings outlook on margin contraction, and expects its transaction sizes to decline as pent-up demand wanes.

“This is in addition to higher input cost pressure (e.g. chicken, milk, coffee, creamer and sugar) owing to elevated commodity prices and higher operating expenses, due to the minimum wage hike, which would weigh on margins.

“Weaker discretionary spending in the second half of the year could dampen Bfood’s sales demand amid high inflation, in our view,” added CGS-CIMB Research.

It is maintaining its “hold” call on the stock with an ex-bonus target price of 91 sen.

CGS-CIMB Research said the downside risks for Bfood include the reimposition of lockdown measures following newer variants of Covid-19, sharp increase in operational costs and raw material prices, and weaker-than-expected consumer spending on rising inflationary pressures, which could lead to lower sales demand for the company’s products.

Bfood’s share price traded ex-bonus (1-for-4 bonus issue), enlarging its share base by 1.5bil to 1.9bil, it noted, adding the exercise was mainly undertaken to reward its shareholders and broaden its shareholder base.

While this would not have any fundamental impact on the company, CGS-CIMB Research said it is slightly positive on it as it should help to enhance the stock’s liquidity and near-term sentiment.

For the fourth quarter ended June 30, 2022, Bfood’s net profit rose to Rm40.7mil on the back of higher revenue of Rm291.3mil. Its earnings per share was at 11.28 sen, from 4.02 sen in the same period a year ago.

As at the end of FY22, Bfood had a total of 356 Starbucks Malaysia (Bstarbucks) stores (76.4% of Bfood’s total store count, 85% to 88% of total revenue).

Of these, about 21% are drive-through concept outlets.

CGS-CIMB Research said the company aims to increase the number of drivethrough outlets to around 30% to 40% of Bstarbucks’ total number of outlets in the next two to three years.

“This is a positive development as the drive-through format typically carries a higher average transaction size, which should be a boon to margins, in our view.

“After a net new 29 Bstarbucks outlets in FY22, Bfood aims to open more than 30 stores in FY23 in the urban and suburban areas, further expanding its store network across Malaysia, particularly in high footfall and traffic areas,” CGS-CIMB Research added in its note.