We saw a bit of turbulence in the Bursa in April 2017. Wall Street had certainly overreacted to the possibility of an nuclear war between the United States of America and North Korea. That fear crept into Bursa too.
Whilst many bought into the possibility of a doomsday scenario, cool-headed investors made the most of the unnerved market.
As stated in my article, Analysis of Elsoft Research Bhd, i would continue to accumulate shares of Elsoft Research Bhd. The scare of a nuclear annihilation created an opportunity for me to get in the market, at a bargain. Needless to say, I seized that opportunity and increased my stake in Elsoft Research Bhd when its shares took a beating from a high of RM2.230 (11 April 2017) to a low of RM1.936 (14 April 2017). I bought in @ RM1.96. That’s a discount of about 12%.
I’ve also sold the entirety of my stake in Sapura Energy Bhd for a meager profit of 10% (excluding the meager dividend). I felt that the dynamics of the oil and gas market was impeding any meaningful yield in Sapura Energy Bhd. The profit and the capital from the said sale would serve me better through a stake in Kronologi Asia Bhd, which is making a strong presence in India with and South East Asia.
To conclude, my portfolio currently looks like this:
Cash reserve is at its lowest level, at 4.01%.
There is a lot of euphoria in the market; enough to attract the bear the lurking bear. Keep that in mind.
Let’s get cracking on Berjaya Food Berhad (“BJFood“).
BJFood is in the food business and it operates a number of franchises namely:
Kenny Rogers Roasters (“KRR“)
Starbucks franchise has roughly 250 stores nationwide including drive-thrus. There are 4 Starbucks outlets outside of Malaysia which are operated by BJFood’s subsidiary, namely in Brunei.
BJFood owns KRR franchises in Malaysia, Indonesia and Cambodia. There are about 100 outlets in Malaysia (April 2016), 17 outlets in Indonesia (March 2017) and possibly 1 outlet in Cambodia (2014).
BJFood owns 33 Jollibean outlets, 12 Sushi Deli outlets and 2 Kopi Alley outlets in Singapore (April 2016). Jollibean’s signature product is its soy milk drinks, Kopi Alley sells traditional coffee and traditional food and Sushi Deli sells Japanese food of the likes of sushi, sashimi and bento.
As usual, a table prepared to give you a broader view of BJFood’s financials from FY2011 to FY2016.
OPERATING PROFIT (RM’000)
SHAREHOLDERS’ EQUITY (RM’000)
DEBT TO EQUITY
OPERATING PROFIT MARGIN
EPS (ADJUSTED) CENTS
DIVIDEND PAY OUT
At a glance, revenue has been skyrocketing. It increased 7 folds within a span of 5 years. Astronomical indeed. Without a doubt there is a strong demand for BJFood’s products.
But what products are doing well exactly? Well, a large chunk of BJFood’s revenue came from Starbucks. In fact, Starbucks contributed RM404.9 million to BJFood’s revenue in FY2016. That’s an overwhelming 72% of BJFood’s total revenue in FY2016.
On the other side of the coin, almost everything else is has gone pear-shaped including:
BJFood’s liquidity to service its short term debts; constrained by rapid expansion.
The lacklustre profit is attributed to the loss incurred from KRR in Indonesia to the tune of RM7.6 million in FY2016. Further the profits from KRR’s operation in Malaysia declined from RM9.5 (FY2015) million to RM2.5 million (FY2016). That is a monumental decrease of about 73%.
In part, unfavourable currency exchange also affected the costs of raw materials which chewed up profit.
Not much has changed for BJFood. Its performance in FY2017 is also leaving a trial of bad memories for investors. Its latest quarter report (Q3 FY2017) indicates a declined in year-on-year profit, from RM11 million to RM8.3 million.
BjFood’s abysmal performance hasn’t gone unnoticed by the market. BJFood share price has dipped about 7.5% from a year ago.
Notwithstanding the above, not all is gloom and doom. BJFood, albeit, taking a while, took cost-cutting measures by shutting down unprofitable KRR outlets. For example, there were 23 KRR outlets in Indonesia at the end of FY2016. Only 17 remain.
BJFood is also contemplating upon the disposal of non-performing businesses like KRR and Jollibean. However, there is nothing concrete to this regard as of yet.
BJFood recognises that Starbucks in the creme de la creme. In reaction to that, BJFood is increasing the number of Starbucks outlets. There may be close to 25 additional Starbucks outlets by the end of FY2017. Whether such exercise will pay off has yet to be seen.
Capitalising on the increasing demand for Starbucks’ products, BJFood made an audacious decision by increasing the prices of Starbucks beverages in January 2017 to about 10-15%, depending on the types of beverages. This would increase profit margin which has been subdued by unfavourable currency exchange rate throughout the most of FY2016.