AmBank Research - Berjaya Food : Earnings skewed by higher effective tax rates HOLD, 13 Jun 2016

STOCK FOCUS OF THE DAY

Berjaya Food : Earnings skewed by higher effective tax rates      HOLD

We reaffirm HOLD on Berjaya Food (BFood) with a slightly higher fair value of RM1.85/share (from RM1.80/share, previously) as we roll forward our valuation base to CY17. We continue to peg the stock at a fully-diluted PE of 19x. BFood reported a 4QFY16 core net profit of RM3mil to bring its full-year core earnings to RM23mil (YoY: +28%). Although the results only made up 84% of our full-year estimate, we deem it to be in line as the variance can be primarily attributed to the quarter’s higher-than-expected effective tax rate of 74. In addition to its inability to offset tax credits generated at its holding company level which we had earlier imputed but at a lower quantum, we learnt that BFood had to pay RM600k to the Customs Department in 4Q as additional import duty and sales tax in relation to BStarbucks’ past purchases from its principal.

Taking into account the above, we have raised our effective tax rate assumption for FY17-18F by a further 5ppts to 40%. This resulted in earnings cuts of 16% for FY17F and 14% for FY18F. BFood’s FY16YoY revenue and core net profit improvement can be attributed to the full consolidation of BStarbucks in Sept 2014 (2QFY15) as well as its 2-ppt EBIT margin expansion to 9%. Starbucks had maintained its strong performance to remain BFood’s key earnings driver in FY16. Its continuous new store openings and sustained SSSG recovery of 5% in FY16 (FY15: 0%) is in contrast to KRR’s, which saw more store rationalisations and SSSG declines of 17% for KRR Malaysia and 11% for KRR Indonesia. Unsurprisingly, given 3QFY16’s seasonality, BFood’s topline and pretax profit were lower by 6% and 31% QoQ. A fourth interim dividend of 1sen/share was also declared. Total dividends for FY16 of 4.25sen/share translate to a payout ratio of 70% and yield of 2.3%. The stock is currently trading at0.5SD to 1SD above its historical average of 16x. We believe the slight premium is justified given its strong franchise value and attractive direct leverage to Starbucks Corp (forward PE of 29x).

Others :

Plantation Sector : Palm inventory down 8.8% MoM        UNDER REVIEW

NEWS HIGHLIGHTS

AirAsia : Tan seen heading AirAsia China, Japan

Malaysia Marine and Heavy Engineering Holdings : First oil production expected from Malikai field in 2017

REITs Sector : Is AmFirst REIT regaining favour?

Banking Sector : Banks beefing up bancassurance ops

QUICK TAKE

Plantation Sector : Newsflow for week of 6 to 10 June

ECONOMIC HIGHLIGHTS

Malaysia : IP, Sales and PMI figure suggests GDP is likely to bottom out in 4Q2016

Philippines : Low base should help improve exports figure going forward