KUALA LUMPUR (Aug 24): Several securities firms have downgraded Berjaya Food Bhd (BFood), slashing their target prices to a low of 78 sen after its disappointing fourth quarter results with the largest quarterly net loss of RM30.16 million.

The Starbucks coffee chain operator appears to be a victim of an increasing number of companies adopting the work-from-home policy that has led to lower coffee sales, said Hong Leong Investment Bank’s HLIB Research.

However, RHB Investment Bank Bhd has gone against the herd, and has put the stock on its recommendation list with a target price of RM1.38 – a 20% upside from its current trading price of RM1.15.

BFood’s shares are currently hovering around their lowest level since mid-2012. The stock has slipped from its height of RM1.80 last year.

RHB acknowledged that the Starbucks coffee chain operator’s losses in the fourth financial quarter ended June 30 (4QFY20) were worse than expected due to the disruption caused by the Covid-19 pandemic.

On the other hand, RHB's optimistic view on BFood hinges on expectations that a sharp earnings recovery is underway following “the encouraging improvement in the first financial quarter ended Sept 30 (1QFY21) sales volumes”. Furthermore, it foresees narrower losses from the Kenny Roger’s Roasters (KRR) division after shutting down nine underperforming outlets.

RHB told its clients to put the uninspiring financial year ended June 30, 2020 (FY20) behind them.

“We expect BFood to stage  a quick and sharp 1QFY21 earnings rebound. We understand that volume has recovered well – even surpassing pre-MCO levels – following the broader-based relaxation of the MCO.

“This could be due to strong pent-up demand and higher disposable income – a result of the low interest rate environment and COVID-19-related assistance packages, including the loans moratorium.

“Additionally, the COVID-19 crisis could have phased out financially weaker competitors and could have also rendered BFood additional market share,” RHB’s analyst Soong Wei Siong wrote in the result review.

CGS-CIMB, which pegs its target price at 94.2 sen, maintained its “reduce” call on BFood amid the view of lower footfall in Starbucks outlets and weaker discretionary spending.

HLIB Research commented that the earnings growth from Starbucks operations to be tepid because the company will slow down its outlet expansion plans. BFood is expected to open 20 outlets in FY21, compared with 25-30 planned before the Covid-19 pandemic.

It also noted that many companies have continued with work-from-home arrangements that have affected coffee sales at Starbucks outlets leading to weaker same store sales.

Furthermore, HLIB Research noted that BFood is attempting to revive KRR by launching small-format outlets. However, it says turning around the casual dining business in the midst of economic volatility remains a challenge.