Is Berjaya Food still attractive after share price more than doubled?

Is Berjaya Food still attractive after share price more than doubled?
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KUALA LUMPUR (June 14): While Berjaya Food Bhd’s (BFood) recently proposed a four-for-one bonus issue may garner investors’ interest with the share price adjustment, the key question is whether the stock will remain attractive after an eye-popping rally in its share price since the beginning of the year? 

Having surged more than 121.4% this year, the Starbucks and Kenny Rogers Roasters franchise operator is currently trading at trailing and forward price-to-earnings ratios (PER) of 17.82 times and 15.89 times respectively.

At a glance, it appears that the stock’s valuation remains reasonable, judging by the forward PER of 17.95 times, 19.19 times and 19.34 times for its peers — 7-Eleven Malaysia Holdings Bhd, Padini Holdings Bhd and AEON Co.(M) Bhd, respectively.

In the recently announced third quarter ended March 31, 2022 (3QFY22), the group’s net profit jumped nearly three times to RM31.58 million, from RM11.61 million, on the back of higher same-store-sales growth, particularly from Starbucks cafe outlets, as a result of the improved mobility upon the resumption of domestic tourism and further relaxation of the Covid-19 standard operating procedures.

Nine-month net profit also surged to RM82.08 million, from RM33.1 million previously.

For the whole of FY22, it is expected to post a net profit of RM111.4 million — according to Bloomberg, which is 135% higher than the RM47.36 million in FY21. Meanwhile, the net earnings for FY23 is forecast to be slightly lower at RM109.8 million.

Of the six catalysts covering the stock, five have placed “buy” calls and one “hold” call, with a consensus target price of RM5.15. This implies a potential upside of 8.2% against its closing price of RM4.76 on Tuesday (June 14).

Maybank Investment Bank Bhd, in its research note last month, said it believes BFood’s sequential earnings will remain strong, fuelled by higher sales volume from the Hari Raya Aidilfitri celebrations, reopening of international borders and extension of business hours past midnight.

“We maintain a ‘buy’ call with a higher target price of RM5.70, from RM3.30 previously, as we peg BFood to a higher FY23 PER of 20 times to reflect its normalised business conditions post-pandemic,” it said. 

Meanwhile, Hong Leong Investment Bank (HLIB) highlighted BFood’s strong sales momentum that surpassed the pre-pandemic level was driven by higher transaction counts. 

It noted that the group has taken efforts in ramping up its marketing and promotions for seasonal drinks and merchandise, which command higher margins. 

“We raise our FY22/23/24 forecasts by 52%, 66%, 84% respectively to account for higher sales volume and improving margin.

“We are positive on Starbucks, which continues to grow via new outlet openings and higher sales from active promotions and continual innovative products. Hence, we have maintained our ‘buy’ call with a higher target price of RM4.83 from RM3.80 previously, based on 16 times PER of FY22 earnings per share,” it said. 

Lee Weng Khuen