KUALA LUMPUR: Berjaya Food Bhd (BFood) is said to be looking at options to take Kenny Rogers Roasters (KRR) — which has been dragging down its earnings — out of the group, according to sources.
“We were told that the management is looking at options to remove KRR from BFood’s portfolio. It can be either sold to outsiders, or taken private by the other non-listed entities under the Berjaya group,” a source told The Edge Financial Daily.
While there are concerns about the disposal not being able to fetch a good price given its financial performance, he said there are still potential buyers for the franchise.
“At one point fast-food chain Burger King was not doing well in Malaysia. But if a potential buyer has new ways to rebrand or revamp it, there is still potential and opportunities for the business,” he noted.
Another source close to the deal said there is no time frame for the disposal, but it will be concluded “soon”.
BFood, which also operates the Starbucks coffee chain, declined to comment on the matter when contacted.
An analyst told The Edge Financial Daily that there have been whispers in the market that BFood is looking to dispose of its loss-making roast chicken chain.
Quoting a source within Berjaya group, China Press reported in February that BFood has already disposed of the chain, although no announcement are made on Bursa Malaysia.
BFood’s parent company, Berjaya Group Bhd (BGroup) effectively holds the worldwide KRR franchise following BGroup’s acquisition of KRR International Corp in April 2008. According to KRR’s website, there are currently 96 KRR restaurants across Malaysia.
BFood currently has three brands in its portfolio, namely Starbucks, KRR and Jollibean.
On Wednesday, BFood announced a 36.83% fall in net profit for the third quarter ended Jan 31, 2017 (3QFY17), to RM4.68 million from RM7.4 million a year earlier.
The company’s lower net profit was mainly due to losses incurred by the KRR chain as a result of weak consumer sentiment in Malaysia as well as higher write-down of fixed assets arising from the closure of certain non-performing restaurants.
Its quarterly revenue, however, was up 11% to RM163.54 million from RM147.28 million a year ago on additional Starbucks cafes operating in the current quarter.
For the cumulative nine months of FY17, its net profit fell 25.36% to RM14.71 million or 3.91 sen a share from RM19.71 million or 5.25 sen a share a year ago. Meanwhile, its revenue was 9.38% higher at RM454.02 million from RM415.1 million last year.
While most analysts have maintained “hold” calls on the stock, RHB Research has maintained its “buy” call on BFood as it believes investors should look beyond near-term earnings weakness and value Starbucks’ brand equity.
“A potential successful disposal of KRR, if it happens, would be earnings accretive and could trigger a rerating of BFood as a pure Starbucks play,” the research house wrote in a note yesterday.
Looking forward, RHB Research expects BFood’s growth to be underpinned by Starbucks outlet expansions and margins recovery led by price increases (8% to 9% average) in January.
Meanwhile, Maybank Investment Bank Research analyst Kevin Wong said although BFood has already started to close down some of the loss-making KRR outlets, the positive impact is not significant as the consumer sentiment is still weak.
“I think they will need more time, not so soon. I agree that the disposal of KRR could be a rerating catalyst for BFood, but the management has yet to announce anything. There is still a big question mark,” he told The Edge Financial Daily.
In his note yesterday, Wong said in 3QFY17 KRR in Malaysia and Indonesia have achieved positive same store sales growth of +8% and +0.7% year-on-year, largely attributed to BFood’s aggressive closure of underperforming outlets since FY16.
However, these entities continue to drag down BFood’s bottom line as KRR in Indonesia reported a 3QFY17 operating loss of RM2.6 million (3QFY16: RM2.1 million operating loss).