Berjaya Food Berhad’s (BFD) near-term sales may be affected and a negative share price reaction following the recent Starbucks boycott induced by the Israel-Hamas war, but its long-terms earnings is still looking positive.
In its Company Flash note, CGS-CIMB retains ADD call on BFD, with its GGM-based TP of RM1.00 (FY26F ROE of 21%, 9.5% COE and 4% long-term growth).
“We remain positive on BFD’s long-term earnings trajectory given its strong brand equity, as we estimate BFD to revert to earnings growth of 3.6%, 12.5%, 10.3% in FY24F, 25F, 26F, driven by revenue growth of 3% to 8% via higher Starbucks store openings.
“A recovery in margins as lower input costs ease meaningfully from 2HFY24F onwards,” it said.
CGS-CIMB believes this boycott would affect BFD’s near-term sales, especially in 2QFY6/24F, and weigh on its share price until the call for boycotts dissipates.
“We outline various scenarios based on the revenue decline. Assuming a three-month impact, we estimate a 15% decline in FY24F sales, which would translate into a 30% decline in FY24F core net profit (CNP) versus our current estimates of RM107.9m.
“This would place BFD on 18 times core FY24F P/E, a discount of 16% to our CGS-CIMB consumer discretionary sector’s CY24F P/E of 21.4 times,” it said.
The research house said past Starbucks boycott event in Malaysia had limited impact.
Citing an example, it said that back in 2017, Malaysian group Perkasa called on its more than 500k members then to boycott Starbucks due to the latter’s support for LGBT rights.
“Nonetheless, we found that BFD’s sales then was largely unaffected and the negative knee-jerk share price reaction was short-lived followed by a share price appreciation of c.39% over the next 6 months.
“While we acknowledge the above two incidents are not comparable, it does provide some basis for comparison,” it added.
CGS-CIMB’s key re-rating catalysts include a sharp decline in input costs, better-than-expected sales, and potential earnings-accretive M&A activities while its key downside risks are prolonged input cost pressures, intensified competition, and lower-than-expected sales due to a protracted Israel-Hamas war-induced Starbucks boycott incident.
Over the weekend, Singapore daily had reported on Nov 4 that some Malaysians are boycotting Starbucks outlets as its US-based principal Starbucks International sued its Iowa’s labour union over a union social media account stating support for Palestinians, it noted.
