BFood — healthy food for thought

Berjaya Food Bhd
(Listing on March 8, IPO price 51 sen)
Not rated, target price 57 sen: Kenny Rogers Roasters (KRR) is an international chicken chain with a global presence. While it originates from the US, KRR now operates primarily in Asia after it was acquired by Berjaya Group (BGroup) in 1993. Since then, KRR has flourished in Asia, spreading to Singapore, China, Bahrain, Indonesia and particularly, Malaysia and the Philippines. Today, KRR has a very small presence in the US although its foothold in Asia has grown in strength.

KRR is among the largest operators of mid-casual dining restaurant chains in Malaysia with 52 outlets currently. To further drive growth, it intends to open eight to 10 outlets a year.

KRR’s central theme is wholesome, hearty and well-balanced meals. As consumers increasingly adopt healthier lifestyles and eating habits, the chain should gain a competitive edge over its peers in the longer term.

As health consciousness grows among the country’s population, so will the consumption of healthy food.

In 2008, Berjaya Roasters Sdn Bhd (BRoasters) and Roasters Asia Pacific Malaysia (RAPM) entered into an agreement whereby RAPM would cease to have the right to grant franchises to other parties in Malaysia. This made BRoasters the sole franchise for RAPM in Malaysia.

Currently, there are still 13 third party franchisees in Malaysia which BRoasters intends to acquire in the future, depending on the pricing.

In addition, BGroup does not discount the possibility of injecting its other food businesses into BFood once they turn more profitable.

BFood registered an encouraging sales CAGR of 22% over the past five years, fuelled mainly by new openings while net profit grew at a faster four-year CAGR of 46.1% driven mainly by higher selling prices. We expect BFood to register a three-year revenue and net profit CAGR of 21.8% and 18.5 respectively, primarily based on our assumption of eight new outlets per annum and lower operating cost as the group achieves greater economies of scale.

We value BFood at 57 sen, based on 7.5 times PE. This represents a 30% discount to its closest peer in Malaysia, QSR Brands, due to its smaller revenue and earnings base. The group intends to distribute up to 50% dividend payout. — OSK Research, March 7

This article appeared in The Edge Financial Daily, March 8, 2011.