BFood’s losses prompt downgrades, but RHB tells clients to buy

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KUALA LUMPUR (Aug 24): Several securities firms have downgraded Berjaya Food Bhd (BFood), slashing their target prices (TPs) to as low as 78 sen, after it posted disappointing fourth-quarter results with the largest quarterly net loss of RM30.16 million.

The Starbucks coffee chain operator appears to be a victim of an increasing number of companies adopting the work-from-home policy that has led to lower coffee sales, according to Hong Leong Investment Bank (HLIB) Research.

However, RHB Investment Bank Bhd has gone against the herd, putting the stock on its recommendation list with a TP of RM1.38 — a 20% upside from its current trading price of RM1.15.

BFood shares are currently hovering around their lowest level since mid-2012. The stock has slipped from its height of RM1.80 last year.

RHB acknowledged that the Starbucks coffee chain operator’s loss for the fourth financial quarter ended June 30, 2020 (4QFY20) was worse than expected due to disruption caused by the Covid-19 pandemic.

On the other hand, RHB's optimistic view on BFood hinges on expectations that a sharp earnings recovery is under way following “an encouraging improvement in the first financial quarter ending Sept 30 (1QFY21) sales volume”. Furthermore, it foresees a narrower loss from the Kenny Rogers Roasters (KRR) division after the company shut down nine underperforming outlets.

RHB told its clients to put the uninspiring financial year ended June 30, 2020 (FY20) behind them.

“We expect BFood to stage a quick and sharp 1QFY21 earnings rebound. We understand that volume has recovered well — even surpassing pre-MCO (movement control order) levels — following broader relaxation of the MCO.

“This could be due to strong pent-up demand and higher disposable income — a result of the low interest rate environment and Covid-19-related assistance packages, including the loan moratorium.

“Additionally, the Covid-19 crisis could have phased out financially weaker competitors and also rendered BFood additional market share,” RHB analyst Soong Wei Siong wrote in the result review.

CGS-CIMB Research, which pegs its TP at 94.2 sen, maintained its “reduce” call for BFood amid lower footfall in Starbucks outlets and weaker discretionary spending.

HLIB Research commented that earnings growth from Starbucks operations would be tepid as the company slows down its outlet expansion plans. BFood is expected to open 20 outlets in FY21, compared with 25-30 planned before the Covid-19 pandemic.

It also noted that many companies had continued with work-from-home arrangements, affecting coffee sales at Starbucks outlets and leading to weaker same-store sales.

Furthermore, HLIB Research noted that BFood is attempting to revive KRR by launching small-format outlets. However, it said turning around the casual dining business in the midst of economic volatility remains a challenge.

Edited by Lam Jian Wyn