BERJAYA FOOD BHD

By Maybank Investment Bank Research Buy (maintain) Target price: RM1.95

MAYBANK Investment Bank (IB) Research has raised its target price for Berjaya Food (BFood) to RM1.95 from RM1.70 previously. The brokerage says the higher target price is based on a rolled forward 27 times the estimated price-earnings ratio for 2019.

It maintains a “buy” call on BFood, noting that valuations remain undemanding, on the back of decent potential earnings growth.

Maybank IB says it expects BFood’s earn- ings to remain driven by the group’s Starbucks chain.

“We remain positive on Starbucks, premised on its prominent branding and positioning in Malaysia as the leading coffee chain operator. This, in turn, would lead to resilient sales volume,” the brokerage says.

“On the contrary, we remain cautious on Kenny Rogers Roaster’s (KRR) earnings outlook as competition has remained stiff for the entity,” it adds.

BFood’s core net profit rose 54% year-onyear (y-o-y) to RM6.9mil, excluding the forex gain of RM200,000, in the second quarter ended Oct 31, 2018. This brings the group’s core earnings to RM12.4mil, up 19% yoy, for the first half of its financial year ending April 30, 2019, representing 53% of Maybank IB’s full-year estimate.

The research body notes BFood’s second-quarter stronger core earnings was largely attributed to Starbucks and the disposal of loss-making KRR in Indonesia in November 2017. During the quarter in review, Starbucks recorded same-store sales growth of 2.7% y-o-y, while 21 new stores have been opened since end-October 2017, thus raising the number of Starbucks outlets to 269 at end-October 2018.

It is noted that BFood’s strong second-quarter earnings were partly pulled back by KRR in Malaysia, which continued to record weak performance with same-store sales decline of 10% y-o-y.