Analysis

Analysis of Berjaya Food Berhad

Dear Readers

Let’s get cracking on Berjaya Food Berhad (“BJFood“).

Introduction

BJFood is in the food business and it operates a number of franchises namely:

  1. Starbucks
  2. Kenny Rogers Roasters (“KRR“)
  3. Jollibean
Starbucks

Starbucks franchise has roughly 250 stores nationwide including drive-thrus. There are 4 Starbucks outlets outside of Malaysia which are operated by BJFood’s subsidiary, namely in Brunei.

Starbucks3-600x400

KRR

BJFood owns KRR franchises in Malaysia, Indonesia and Cambodia. There are about 100 outlets in Malaysia (April 2016), 17 outlets in Indonesia (March 2017) and possibly 1 outlet in Cambodia (2014).

Jollibean

BJFood owns 33 Jollibean outlets, 12 Sushi Deli outlets and 2 Kopi Alley outlets in Singapore (April 2016). Jollibean’s signature product is its soy milk drinks, Kopi Alley sells traditional coffee and traditional food and Sushi Deli sells Japanese food of the likes of sushi, sashimi and bento.

Financials

As usual, a table prepared to give you a broader view of BJFood’s financials from FY2011 to FY2016.

DATA 2016 2015 2014 2013 2012  

2011

 

REVENUE (RM’000) 554146 376780 150369 121915 88598 71938
PROFIT (RM’000) 17878 177574 22669 18628 11126 10193
OPERATING PROFIT (RM’000) 48707 185202 7237 12347 14635 12575
SHAREHOLDERS’ EQUITY (RM’000) 388503 394419 162787 142748 56071 50793
DEBT (RM’000) 358151 326439 30694 23235 20767 13459
                                                         RATIO
DEBT TO EQUITY 0.92 0.82 0.18 0.16 0.37 0.26
OPERATING PROFIT MARGIN 0.08 0.49 0.04 0.10 0.16 0.17
OCF RATIO 0.23 0.449 0.416 0.666 0.813 1.61
PROFIT MARGIN 0.035 0.47 0.13 0.14 0.12 0.14
EPS (CENTS) 6.0 54.4 8.5 8.2 7.8 7.5
EPS (ADJUSTED) CENTS 6.0 46.9 6.0 5 3 2.8
DPS CENTS 4.25 5.75 4.25 3.50 4.50 3.00
DIVIDEND PAY OUT 0.70 0.106 0.501 0.428 0.575 0.416
P/E 30.87 5.3 17.4 16.5 12.7 12.5
ROE 5.75 45 13.9 12 19.8 20

At a glance, revenue has been skyrocketing. It increased 7 folds within a span of 5 years. Astronomical indeed. Without a doubt there is a strong demand for BJFood’s products.

But what products are doing well exactly? Well, a large chunk of BJFood’s revenue came from Starbucks. In fact, Starbucks contributed RM404.9 million to BJFood’s revenue in FY2016. That’s an overwhelming 72% of BJFood’s total revenue in FY2016.

On the other side of the coin, almost everything else is has gone pear-shaped including:

  1. BJFood’s liquidity to service its short term debts; constrained by rapid expansion.
  2. Operating margin.
  3. Profit margin.

The lacklustre profit is attributed to the loss incurred from KRR in Indonesia to the tune of RM7.6 million in FY2016. Further the profits from KRR’s operation in Malaysia declined from RM9.5 (FY2015) million to RM2.5 million (FY2016). That is a monumental decrease of about 73%.

In part, unfavourable currency exchange also affected the costs of raw materials which chewed up profit.

Not much has changed for BJFood. Its performance in FY2017 is also leaving a trial of bad memories for investors. Its latest quarter report (Q3 FY2017) indicates a declined in  year-on-year profit, from RM11 million to RM8.3 million.

BjFood’s abysmal performance hasn’t gone unnoticed by the market. BJFood share price has dipped about 7.5% from a year ago.

Conclusion

Notwithstanding the above, not all is gloom and doom. BJFood, albeit, taking a while, took cost-cutting measures by shutting down unprofitable KRR outlets. For example, there were 23 KRR outlets in Indonesia at the end of FY2016. Only 17 remain.

BJFood is also contemplating upon the disposal of non-performing businesses like KRR and Jollibean. However, there is nothing concrete to this regard as of yet.

BJFood recognises that Starbucks in the creme de la creme. In reaction to that, BJFood is increasing the number of Starbucks outlets. There may be close to 25 additional Starbucks outlets by the end of FY2017. Whether such exercise will pay off has yet to be seen.

Capitalising on the increasing demand for Starbucks’ products, BJFood made an audacious decision by increasing the prices of Starbucks beverages in January 2017 to about 10-15%, depending on the types of beverages. This would increase profit margin which has been subdued by unfavourable currency exchange rate throughout the most of FY2016.

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Beverage prices before January 2017 price hike.
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After the price hike in January 2017.
IMG-20170423-WA0007
Patron turn out is not that bad for a Saturday morning at my local mall. Credit to girlfriend .
Disclosure

I do not own shares of BJFood.

Reference
  1. FY 2016 Annual Report
  2. http://www.theborneopost.com/2017/03/18/starbucks-expansion-to-alleviate-bjfoods-cost-margin-pressure/
  3. http://www.thestar.com.my/business/business-news/2017/03/16/berjaya-food-results-dragged-down-by-kenny-rogers-roasters-losses/
  4. https://www.pressreader.com/malaysia/the-borneo-post-sabah/20161229/282385514178770
  5. http://www.theedgemarkets.com/article/%E2%80%98bfood-mulls-selling-loss-making-kenny-rogers-roasters-chain%E2%80%99
  6. https://markets.ft.com/data/equities/tearsheet/financials?s=BJFOOD:KLS
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