Berjaya Food Berhad (BFD) posted a core net profit (CNP) of RM16.2 million, bringing the first 9 months of financial year 2023 CNP to RM82.5 million which missed CGSCIMB’s already below Bloomberg consensus expectation at 69% of their financial year 2023 future estimate and 60% of consensus.
“In our view, the earnings underperformance was mainly attributable to higher-than-expected input costs and operating expenses compressing margins,” said CGSCIMB in the recent Company Note.
As a result, quarter three financial year 2023 earnings before interest, tax, depreciation and amortization margin fell markedly to 24.5%.
Also, BFD declared a third interim dividend of 0.5 sen per share, bringing the total to 3 sen per share, within our expectations.
BFD’s quarter three financial year 2023 sales increased 8% year-on-year, which was within our expectations, likely driven by higher store count for Starbucks Malaysia.
However, quarter three financial year 2023 same store sales growth for Starbucks Malaysia remained flat and negative double-digits for Kenny Rogers Roasters.
Moving forward, CGSCIMB sees potential demand slowdown for its products amidst rising competition in the domestic coffee retailer landscape and high inflationary pressures curtailing consumers’ discretionary spending.
In addition, CGSCIMB believes further price hikes could be a tall order in the current tough operating environment, given it raised prices in Dec 2022, any hikes could be at the expense of sales volume.
Meanwhile, CGSCIMB gathered that management remains committed to open 14 new Starbucks outlets in quarter four financial year 2023 future and 40- 45 stores in financial year 2024 future to drive growth.
CGSCIMB believes the downward margin pressures are unlikely to abate in the near-to-medium term due to structural cost inflation, which might keep input costs and operating expenses elevated.
“Hence, we reduce our financial year 2023-2025 future earnings per share estimates by 10.9-15.3% to account for our lower margin assumptions on rising costs,” said CGSCIMB.
Key de-rating catalysts identified by CGSCIMB are weaker-than-expected sales. Upside risk is a sharp fall in input costs.