Will BJFOOD 5196 BERJAYA FOOD BERHAD continue to be dragged by margins compression and RPT?

 Will  BJFOOD 5196 BERJAYA FOOD BERHAD continue to be dragged by margins compression and RPT?


Berjaya Food Bhd (BFood) saw its shares being actively trade on May 3, gaining some 3.4% to close at 92 sen.


Not bad for a company which was trading at a 52-week low of 68 sen last September, but still shy of its high of RM1.17.


Certainly, its crown jewel is the Starbucks franchise, which is its cash cow.


This is evident in its six months results ended Dec 31, 2022.


BFood’s net profit rose 39% to RM70.1 million in 1HFY23 from RM50.50 million a year earlier.


Revenue increased 25.6% to RM578.4 million from RM460.5 million during the same period.


BFood saw higher same-store sales growth, particularly from the Starbucks cafe outlets, as well as the additional Starbucks outlets operating in Malaysia.


However, on a QoQ basis, BFood net profit declined 8.7% to RM35.5 million from RM38.9 million a year before, mainly due to margin compression as a result of higher operating costs.


Now that Bank Negara just raised the overnight policy rate (OPR) by another 25 basis points (bps) to 3% on May 3, there are concerns of increased inflationary pressure, crimping its margins further.


The latest benchmark interest rate hike brings it to the pre-pandemic level of 3%, which was last seen on Nov 5, 2019.


Nevertheless, BFood expects Starbucks to maintain its revenue growth momentum with the operating results to remain satisfactory for the remaining quarters of FY2023, despite facing inflationary pressures.


Analysts are positive on BFood on the back of resilient product demand and new store expansion.


The total count for Starbucks and Kenny Rogers Malaysia were 373 (+30 stores YoY,

+10 stores QoQ) and 70 (+1 store YoY, +2 stores QoQ) respectively.


Maybank Investment maintains a buy call with unchanged target price of RM1.50


It expects BFood earnings to be stable in subsequent quarters, lifting its FY23E-FY25 DPS estimates to 5 sen p.a. from 2 sen, in-line with its higher payout in 2QFY23.


BFood declared a second interim DPS of 2 sen bringing 1HFY23 DPS to 2.5 sen versus 0.4 sen a year ago.


But investors may not like the seemingly related party transaction involving Tan Sri Vincent Tan’s controlled companies.


This is where BFood announced its proposal to buy a 1.07% stake in 7-Eleven Malaysia Holdings Bhd (SEM).


Interestingly, the acquisition price was RM22 million, which is just below the 5% threshold of BFood’s net asset of RM498 million.


This means BFood does not need shareholders’ approval for the acquisition exercise.


That said, RM22 million is not a big sum for BFood and would not cause a dent on its already strong cashflow.


It will be interesting to see if the BFood’s margins will continue to be a drag especially with the unexpected move by the central bank to raise interest rates.


F&B outlets will be hard pressed to raise selling prices of its products given that consumer spending might be affected on the back of inflationary pressures.


Essentially, as long as the economy continues to improve, BFood will likely to show growth in the near term.
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