AmInvestment upgrades Berjaya Food to 'hold', raises fair value to RM1.13

AmInvestment upgrades Berjaya Food to 'hold', raises fair value to RM1.13
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KUALA LUMPUR (Nov 3): AmInvestment Bank has upgraded Berjaya Food Bhd (BFood) at RM1.15 to "hold" from "sell" with a higher fair value (FV) of RM1.13, from 78 sen previously, as it expects better sales growth from the first quarter ended Sept 30, 2020 (1QFY21) onwards.

The research house said in a note today it had raised its earnings forecasts for BFood by 11%, 10% and 9% for FY21, FY22 and FY23 respectively.

“We raise our forecasts as we expect better sales growth from 1QFY21 onwards. This is due to improved demand from the easing of the movement control order (MCO),” it said.

AmInvestment Bank said the forecasts changes are to account for improving sales of Starbucks due to the easing of movement restrictions since the recovery MCO (RMCO) period, coupled with BFood’s plans to open up around 20 new stores in FY21.

It also expects better sales growth, mainly from Kenny Rogers Roasters (KRR), which is expected to break even or even post a positive profit after tax for FY21.

Besides, BFood closed down 14 underperforming KRR stores in FY20, which should help reduce cost.

The research house said its higher sales growth assumption for BFood for FY21 already reflected the impact of the conditional MCO (CMCO) enforced in red zones recently.

“We think that the impact of the CMCO in 2QFY21 would be slightly offset by improved consumer demand following the easing of restrictions during the RMCO [period] in 1QFY21,” it said.

Meanwhile, BFood plans to open more KRR small-format stores in FY21, from three to five previously to up to 10 stores, aiming to capture changing consumer trends in view of increasing popularity of grab-and-go concept stores.

“It is also a ‘new norm' strategy that BFood is looking into as it believes that it is more viable to open small-format stores in the current environment that require less capex and operating cost compared to restaurants.

“We believe this will result in higher revenue from KRR of 11% from RM69 million in FY20 to RM76 million in FY21, contributing about 10% of BFood’s overall revenue for FY21,” it said.

At 9.51am today, BFood shares were unchanged at RM1.15, valuing the company at RM406.78 million.

Surin Murugiah