Top consumer BUY pick
BFD’s 2QFY22 results were above our/consensus expectations mainly from higher-than-expected sales volume in BStarbucks and an earnings turnaround in KRR Msia. BFD’s outlook remains positive. However, we expect earnings to be lower HoH in 2HFY22 as average consumer spend normalises post-pandemic. Our FY22-FY24 earnings estimates are raised by 42%-76% upon imputing for current operating run rates. Rolling forward valuation to FY23E (from FY22E) and on an updated -0.5SD mean PER of 14x (vs. 18x), our TP is raised to MYR3.30 (+70sen).
2QFY22 earnings more than doubled YoY
BFD’s 2QFY22 core net profit of MYR42m (+218% YoY, +241% QoQ), brought 1HFY22 core net profit to MYR54m (+114% YoY), reflecting 103%/94% of our/consensus full-year earnings estimates. The earnings surprise was driven mainly by the turnaround in Kenny Rogers Malaysia (KRR Msia) and margin expansion in BStarbucks.
BStarbucks SSSG: 51% YoY; KRR Msia SSSG: 61% YoY
2QFY22 group revenue grew 57% YoY due to significantly higher SSSG for BStarbucks (+51% YoY) and KRR Msia (+61% YoY) given less stringent movement restrictions. Meanwhile, group EBIT surged 173% YoY given (ii) increased sales from BStarbucks’ higher margin products (eg. seasonal drinks/merchandise) and (ii) better contribution from KRR Msia. As at end2QFY22, BStarbucks has 343 stores (+12 stores QoQ, FY22-YTD: +16 stores) while KRR Msia has 69 stores (-1 store QoQ, FY22-YTD: -2 stores).
Raised earnings estimates
Our FY22/FY23/FY24 earnings estimates are raised by 76%/48%/42% after imputing for higher EBIT margins for KRR Msia to 11% p.a. (from 1% p.a.), and to 21%/18%/17% for BStarbucks (from 14%/14%/13%). Following pentup demand in 2QFY22, we understand that Jan 2022 sales have eased c.10%. The upcoming Ramadhan period (2 Apr – 2 May) is also expected to see lower sales volume of 10%-20% based on historical trends. Hence, we project earnings to normalize in 2HFY22 on lower average consumer spend. Nevertheless, the eventual reopening of international borders for in-bound tourism could lead to another leg up in sales growth.