BERJAYA FOOD BHD

new ordinary shares together with up to ... Berjaya Food Bhd 12 July ... This report has been prepared for information purposes only and is not an off...

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BERJAYA FOOD BHD

12 July 2012

(BFD MK, BJFO.KL)

Gearing up for acquisition of Starbucks

HOLD

Company report

(Maintained)

AmResearch Sdn Bhd www.amesecurities.com.my

Rationale for report: Company Update

+603 2036 2304 Price Fair Value 52-week High/Low

RM1.43 RM1.00 RM1.51/RM0.80

Key Changes Fair value EPS

 

YE to Apr

FY12

Revenue (RMmil) Core net profit (RMmil) Fully diluted EPS (Sen) Fully diluted EPS growth (%) Consensus EPS (Sen) DPS (Sen) Fully diluted PE (x) EV/EBITDA (x) Div yield (%) ROE (%) Net Gearing (%)

FY13F

Investment Highlights

FY14F

FY15F

88.6 121.3 158.3 196.0 11.1 21.8 30.8 37.9 7.7 6.9 9.2 11.1 33.5 19.9 8.2 8.9 11.0 4.5 5.1 5.6 6.6 17.3 14.5 10.8 9.0 8.3 23.9 18.1 14.3 3.4 3.8 4.2 4.9 20.6 23.8 22.8 24.7 Net cash Net cash Net cash Net cash



We re-affirm our HOLD on Berjaya Food (BFood), with a revised fair value of RM1.00/share versus RM1.45/share previously – accounting for the enlarged share capital to incorporate the rights issue and warrants.



Our revised fair value is pegged to a target PE of 13x, based on fully-diluted CY13F earnings, which is on par to its historical mean of 13x. Peers’ average stands at 14x.



To recap, BFood’s corporate proposal entails:(1) Proposed acquisition of a 50% equity interest in Berjaya Starbucks Coffee for a cash consideration of RM71.8mil; and (2) Proposed renounceable rights issue of up to 118.9mil new ordinary shares together with up to 118.9mil free warrants on the basis of 4 rights issue together for 4 warrants for every 5 BFood share.

Stock and Financial Data Shares Outstanding (million) Market Cap (RMmil) Book value (RM/share) P/BV (x) ROE (%) Net Gearing (%)

142.7 191.2 0.39 3.4 20.6 Net cash

Major Shareholders

Berjaya Group (73.5%) Lembaga Tabung Angkatan Tentera (7.0%)

Free Float (%) Avg Daily Value (RMmil)

18.8 n/a

Price performance Absolute (%) Relative (%)

3mth

6mth

12mth

32.4 31.0

37.1 29.1

58.8 56.8

2.00

1,702

1.50

1,597 In d ex 1,492 P o in ts

) M 1.00 R (

0.50

0.00



The ex-date for the rights issue is today. The rights issue is fixed at RM0.65/share. Theoretical-ex rights price stands at RM1.08/share based on yesterday’s closing price of RM1.43/share.



The rights issue proceeds of up to RM77.3mil cash is allocated to fund the 50% stake acquisition in Berjaya Starbucks without having the need to resort to borrowings.



Meanwhile, the warrants exercise price is fixed at RM0.70/share with a term up to 5 years. Theoretical-ex price (adjusted for rights and warrants) is RM0.97/share.



The injection of Starbucks is expected to be finalised in early August. More importantly, it would bring BFood’s earnings portfolio to greater heights. Starbucks’ expansion is ongoing, targeting 18-20 new outlets per annum. We forecast Starbucks (50%-owned) to contribute pre-tax profits of RM8mil and RM12mil in FY13F and FY14F, respectively.



Nonetheless, BFood earnings are on an upward trend, driven by a growing franchise value. As backed by the growing number of outlets for both Starbucks and Kenny Rogers Roaster (KRR), we are of the view that BFood’s earnings growth should gain greater traction. Furthermore, growth remains robust particularly in urban and sub-urban locations.



At the target PE of 13x, we maintain our HOLD rating because of a limited upside to share price. We remain bullish on BFood, underpinned by long-term prospects arising from the injection of Berjaya Starbucks and massive expansion of KRR in Malaysia and Indonesia.

1,388

M ar -1 1

S ep -1 1

M ar -1 2 Berjaya Food

PP 12247/06/2013 (032380)

FBM KLCI

1,283

12 July 2012

Berjaya Food Bhd

TABLE 1 : THEORETICAL-EX RIGHTS PRICE RM Existing ordinary shares Cum share price

5 1.43

New rights shares

7.15 4

Rights issue price

0.65 2.60

Total value from rights conversion

9.75

Enlarged no of shares Theoretical-ex rights price

9 1.08

Source: Company / AmResearch

TABLE 2 : THEORETICAL-EX RIGHTS AND WARRANTS PRICE RM New warrants to be issued Exercise price of warrants

4 0.70

Value from warrants conv ersion

2.80

Value from rights conversion

9.75

Total value from rights and warrants conversion Fully diluted number of shares Theoretical-ex rights and warrants price

12.55 13 0.97

Source: Company / AmResearch

TABLE 3 : FAIR VALUE RM CY Net Profit Proceeds from conv ersion of ESOS, rights, warrants Interest income @ 4% Adjusted net profit Fully diluted share capital

24.81 122.29 4.89 29.70 386.57

Fully diluted CY EPS

7.68

Target PE (x ) Fair Value

13 1.00

Source: Company / AmResearch

AmResearch Sdn Bhd

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12 July 2012

Berjaya Food Bhd

CHART 1 : PB BAND CHART

CHART 2 : PE BAND CHART

4.0

21.0

3.2

16.8 +1s

2.4

+1s 12.6

)x (

) (x

1.6

Avg

0.8

8.4

Avg

4.2 -1s

0.0 F eb -1 0

M ay -1 0

A u g -1 0

N o v10

F eb -1 1

AmResearch Sdn Bhd

M ay -1 1

A u g -1 1

N o v11

F eb -1 2

M ay -1 2

-1s 0.0 F eb -1 0

M ay -1 0

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F eb -1 1

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TABLE 4 : FINANCIAL DATA Income Statement (RMmil, YE 30 Apr)

2011

2012

2013F

2014F

2015F

Revenue EBITDA Depreciation Operating income (EBIT) Other income & associates Net interest Exceptional items Pretax profit Taxation Minorities/pref dividends Net profit Core net profit

71.9 9.4 (4.7) 4.6 7.2 0.7 0.0 12.6 (2.4) 0.0 10.2 10.2

88.6 19.2 (5.2) 14.0 0.0 0.7 0.0 14.6 (3.4) (0.1) 11.1 11.1

121.3 13.3 (6.8) 6.5 20.4 1.8 0.0 28.7 (6.7) (0.1) 21.8 21.8

158.3 17.4 (7.1) 10 28.3 1.8 0.0 40.4 (9.5) (0.1) 30.8 30.8

196.0 21.6 (7.2) 14.3 33.5 1.9 0.0 49.7 (11.7) (0.1) 37.9 37.9

Balance Sheet (RMmil, YE 30 Apr)

2011

2012

2013F

2014F

2015F

Fixed assets Intangible assets Other long-term assets Total non-current assets Cash & equivalent Stock Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders’ funds Minority interests BV/share (RM)

19.0 1.0 0.0 20.0 36.8 2.3 5.1 0.1 44.3 10.1 0.0 0.4 10.5 0.0 3.0 3.0 50.8 0.0 0.36

24.6 1.3 0.0 26.0 34.6 3.8 13.7 0.0 52.1 15.0 0.0 0.9 15.9 0.0 3.3 3.3 56.3 2.5 0.39

28.5 1.3 0.0 29.8 36.2 4.4 2.0 65.3 108.0 4.4 0.0 1.2 5.6 0.0 2.9 2.9 126.8 2.5 0.48

29.4 1.3 0.0 30.8 38.9 5.8 2.6 77.5 124.7 5.8 0.0 1.5 7.2 0.0 2.9 2.9 142.9 2.5 0.54

30.2 1.3 0.0 31.5 46.1 7.2 3.2 89.6 146.2 7.2 0.0 1.8 9.0 0.0 2.9 2.9 163.3 2.5 0.62

Cash Flow (RMmil, YE 30 Apr)

2011

2012

2013F

2014F

2015F

12.6 4.7 18.7 (15.1) 20.9 (4.2) 0.1 7.8 3.6 0.0 0.2 0.0 (0.2) 0.0 24.5 24.5 36.8

14.6 5.2 14.4 (18.0) 16.2 (8.3) (1.4) 0.7 (9.1) 0.0 2.3 (7.1) 0.0 (4.8) 2.4 2.4 34.6

28.7 6.8 0.5 (16.8) 19.3 (15.0) (71.6) 1.8 (84.8) 0.0 77.3 (13.4) 0.0 63.9 (1.6) (1.6) 36.2

40.4 7.1 (0.6) (23.7) 23.1 (15.0) 0.1 1.9 (13.0) 0.0 0.0 (14.7) 0.0 (14.7) (4.5) (4.5) 38.9

49.7 7.2 (0.6) (27.4) 28.9 (15.0) 0.1 2.2 (12.7) 0.0 0.0 (17.4) 0.0 (17.4) (1.2) (1.2) 46.1

Key Ratios (YE 30 Apr)

2011

2012

2013F

2014F

2015F

Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rate (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days)

19.1 32.5 17.5 14.2 n/a 18.9 41.7 41 11 n/a

23.2 105.0 16.5 12.5 n/a 23.5 58.1 39 13 52

36.9 n/a 23.7 18.0 n/a 23.5 61.3 24 12 29

30.5 30.5 25.5 19.4 n/a 23.5 47.8 5 12 12

23.8 23.8 25.3 19.3 n/a 23.5 45.9 5 12 12

Pretax profit Depreciation Net change in working capital Others Cash flow from operations Capital expenditure Net investments & sale of fixed assets Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Others Cash flow from financing Net cash flow Net cash/(debt) b/f Net cash/(debt) c/f

Source: Company, AmResearch estimates

AmResearch Sdn Bhd

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12 July 2012

Berjaya Food Bhd

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