KUALA LUMPUR: Both are selling coffee but their share prices are heading in different directions.
The share price of Berjaya Food Bhd (BFood) doubled to above RM3 following the news that it wanted to buy the remaining 50% stake in Berjaya Starbucks Coffee Company Sdn Bhd so that it wholly owns and operates the Starbucks franchise in Malaysia.
Meanwhile, OldTown Bhd, which operates the traditional kopitiam chain, seems to have lost its flavour. Its share price has been on the decline since last year, falling from the year’s peak RM2.60 to RM 1.73 last Friday. Year-to-date, OldTown’s share price shed nearly 17% ,while BFood surged 85%.
The hike on BFood’s share price is without a doubt a reflection of investors’ confidence in Starbucks franchise’s growth prospects.
Berjaya Starbucks currently operates the largest premium coffee chain in Malaysia. It has a 40% market share in terms of number of outlets, according to CIMB Investment Bank (IB) Research in a note last month.
BFood is perceived to be a proxy to the current increasing premium coffee consumption amid rising affluence in cities. “You realise local society has changed significantly in recent years. Malaysians have become more affluent, resulting in changing tastes. Coffee chains and Western-style cafes are mushrooming across cities,” said an analyst.
“This [growth on premium coffee demand] is especially so in the long term, in line with higher economic growth and larger disposable income,” the analyst told The Edge Financial Daily.
OldTown’s chain of cafes target the middle- and lower-income groups. The company also has a commanding presence in the coffee fast-moving consumer goods (FMCG) segment, with its signature white coffee product.
Some analysts reckon OldTown may have to continue counting on its coffee FMCG segment, especially in the export markets, given its cafes poor performance. The bank-backed research analyst said opportunities have arisen in emerging markets such as Indonesia and the Philippines.
In the first quarter, OldTown had appointed PT Sukanda Djaya Tbk in Indonesia and Dranix Distributors Inc in the Philippines as key distributors in the respective countries.
“We deem this piece of news positive, as these two companies are also the key distributors of various multinational brands in their respective countries,” said analyst Fong Kah Yan of RHB Research Institute.
She said OldTown’s coffee FMCG may be able to record decent growth in subsequent quarters ahead, driven by sales in both the local and export markets.
Zooming into the coffee FMCG segment, analysts said this segment is very competitive and susceptible to consumer spending patterns.
She foresees a flat consumer spending pattern to affect the coffee FMCG market this year and the beginning of next.
She said consumption spending would be affected in view of the rising living costs due to the subsidy rationalisation and the upcoming implementation of the goods & services tax.
“If you go to supermarkets like Aeon, Giant, Tesco etc, you will see most of the 3-in-1 coffee brands resorting to all sorts of discounts and promotions,” she said.
Against and despite this backdrop, BFood is said to have plans to bring in Starbucks’ FMCG business into Malaysia, according to CIMB IB analyst Eing Kar Mei.
Kenanga Research’s analyst Soong Wei Siang deemed it an “opportunity growth”.
BFood is understood to have secured the letter of intent from Starbucks Coffee International Inc to distribute Starbucks’ FMCG products in Malaysia.
The diversification into the coffee FMCG business will increase the availability of Starbucks’ FMCG products, which currently are limited to selected outlets such as Cold Storage supermarkets.
Eing said the new venture could potentially generate revenue of approximately RM60 million and a net profit of about RM5 million per annum on a conservative basis. This is assuming a conservative 30,000 units of FMCG sold per day at an average selling price of RM5 with an 8% net profit margin.
“We believe 30,000 units are conservative as the group sold about 60,000 cups of coffee per day in its Starbucks outlets in FY14,” she said.
While the outlook for the coffee FMCG segment is seen to be challenging, Berjaya Starbucks’ new venture in FMCG may prevail given its strong brand name. On the other hand, OldTown may have to rely on its overseas market to boost its earnings growth.
This article first appeared in The Edge Financial Daily, on November 17, 2014.