Berjaya Food - Starbucks Coffee making inroads into Brunei BUY

We reaffirm our BUY conviction on Berjaya Food (BFood), with an unchanged fair value of RM2.30/share, based on our DCF valuation.
- BFood via its wholly-owned subsidiary, Berjaya Food (International) Sdn Bhd, entered into a joint venture and shareholders agreement with Deluxe Daily Food Sdn Bhd (Deluxe).This is for the proposed subscription of 80% stake in the new joint venture company called Berjaya Food Supreme Sdn Bhd (BFS) for a cash consideration of BND2.40 mil or RM6.2mil. The remaining 20% will be subscribed by Deluxe.
- The proposed joint venture is to undertake operations of Starbucks Coffee chain in Brunei Darussalam.
- BFood will have management and planning rights of Starbucks’ operations in Brunei, whileDeluxe will assist in obtaining the relevant operation licences and café sites in Brunei.
- As highlighted previously, further regional inroads for Starbucks Coffee into Brunei is positive and bodes well for the group to enhance earnings in the medium to long term. This development also represents a good opportunity for BFood to expand and establish footprint in the food and beverage industry in Brunei.
- The proposed joint venture is subject to following approvals to be obtained:- (i) Bank Negara Malaysia for the remittance of funds by BFood International to BFS; and (ii) Any other relevant authorities in Brunei.
- The cash of BHD2.4mil or RM6.2mil, will be funded either by internally generated funds or bank borrowings. BFood’s strong balance sheet is supportive of its expansion into Brunei, given its debt-free status and cash pile of RM11mil as of 1QFY14.
- Three sites have been confirmed with the earliest maiden outlet to be opened by end-2013. The group plans to increase the Starbucks store count in Brunei to 10 in five years.
- The stock is currently trading at 19x FY14F fully-diluted PE, within its historical range of 11x-21x and is supported by robust earnings CAGR of 32% over the next three years. 
Source: AmeSecurities