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Anticipating stronger earnings momentum

Positive outlook; Maintain BUY

BFD’s 1QFY22 results were in-line with our/consensus expectations. Topline growth will continue to be driven by strong sales growth in BStarbucks while a gradual recovery in shopping mall footfall will also lift KRR Malaysia’s sales contribution going forward. Given the positive outlook for BFD, we raise our FY22-FY24 earnings estimates by 14%-16% to derive a higher TP of MYR2.60 (based on unchanged 18x FY22 PER).

Results met expectations

BFD’s 1QFY22 core net profit of MYR12m (+2% YoY, -31% QoQ) came in within expectations, reflecting 27%/23% of our/consensus full-year expectations. A first interim DPS of 1sen/shr was declared (4Q21: 1sen/shr, 1Q21: 0.5sen/shr), amounting to a core DPR of 29%.

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Strong SSSG of +11% YoY from Starbucks

Despite the FMCO’s adverse impact on store operations, 1QFY22 revenue grew 4% YoY on the back of strong store footfall recovery since movement restrictions eased in mid-Aug 2021. BStarbucks reported 1Q22 SSSG of +11% YoY with a higher average ticket size of c.MYR30 (1QFY21: c.MYR25), which offset weaker contribution from KRR Malaysia (1QFY22 SSSG: -36% YoY). On a QoQ basis, pre-tax profit fell 15% QoQ given a higher base in 4QFY21 where BFD recognised on-off deferred revenue of c.MYR20m, upon terminating their old Starbucks rewards programme. Total store count for BStarbucks and KRR Msia are 331 stores (+9 YoY, +4 QoQ) and 70 stores (-1 YoY, -1 QoQ) respectively.

Revised earnings estimates upwards

With the lifting in interstate travel restrictions in 2QFY22 and expected increase in consumer spending during the upcoming year-end festive period, BFD’s earnings outlook remains positive for FY22. Our FY22/FY23/FY24 earnings estimates are raised by 14%/14%/16% upon adjusting for (i) higher new store opening assumptions to +38/+25/+25 (vs. +30/+25/+25 previously) and (ii) higher EBIT margins of c.1% p.a. in light of increased sales in higher-margin BStarbucks products (eg. seasonal Christmas / Chinese New Year inspired drinks).