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Vincent Tan’s Berjaya Food battered by boycott, ringgit double whammy

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BFood suffers RM42.5 million net loss in Q2 FY2024 as analysts issue ‘sell’ calls.

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Free Malaysia Today
The boycott of Starbucks in Malaysia is a headache for Berjaya Food as the franchise contributes about 90% of group revenue. (Facebook pic)

PETALING JAYA:
The consumer boycott of the Starbucks coffee chain in Malaysia following the outbreak of the Israel-Hamas conflict has been a hammer blow for tycoon Vincent Tan’s Berjaya Food Bhd (BFood), which owns the Malaysian franchise of the American coffee brand.

BFood’s revenue for the second quarter ended Dec 31, 2023 (Q2 FY2024) tumbled 38.19% or RM112.77 million to RM182.55 million from RM295.32 million a year ago, on lower sales due to the boycott, according to the group’s bourse filing yesterday.

This plunged the company into a record net loss of RM42.58 million for the quarter from a net profit of RM35.49 million a year earlier, prompting the inevitable sell recommendations from some research houses.

For the six months ended Dec 31, 2023 (6M FY2024), BFood suffered a net loss of RM23.55 million from a net profit of RM70.19 million in the corresponding period last year.

Free Malaysia Today
Vincent Tan.

Revenue for the period fell 20.28% to RM461.09 million from RM578.37 million previously.

The Israel-Hamas conflict, which erupted on Oct 7, prompted boycotts of American brands such as McDonalds and Starbucks around the world as the US is perceived as supporting Israel in its devastating incursion into the Gaza Strip.

The stock fell as much as 7% or 4 sen to 53 sen, before paring its losses to 56 sen at 4.44pm, valuing the group at RM1.07 billion.

Since early October, the stock has fallen 23.8%, wiping almost RM300 million off its market capitalisation.

The consumer boycott of Starbucks outlets, which sees little signs of abating, is concerning given that the franchise contributes about 90% of group revenue.

Foreign exchange drag

At the same time, BFood has also been squeezed by a weak ringgit, which has fallen more than 4% against the greenback this year. The local note is trading near the lows hit during the Asian Financial Crisis in 1998.

Hong Leong Investment Bank (HLIB) highlights the “foreign exchange drag” on the group as 55% of the cost of beverages purchased from its principal – Starbucks International – is denominated in US dollars.

It said in a note that BFood will face “tough times” despite cost control efforts due to the foreign exchange drag. It downgraded the counter to “sell” from “hold” and slashed its target price (TP) by 40% to 38 sen.

However, BFood is putting on a brave face, stating its performance will show improvement in the remaining quarters of the financial year ending June 30, 2024.

It added the group’s operating performance will “rebound and regain momentum”, viewing the current situation as short-term in nature.

However, some research houses are less optimistic of a rebound anytime soon. “Sales will take time to go back to normal considering the still intense Israel-Gaza conflict that is unfortunately seeing no signs of abating,” said HLIB.

Maybank Investment Bank, which has a “sell” call on the stock, expects BFood to face earnings pressure in the sequential quarters.

“While the severity of boycotts may ease over time, consumer preferences may also shift permanently to competitors due to brand erosion,” it added.

BFood is part of Tan’s business empire with Berjaya Corp Bhd holding a 55.3% stake while Berjaya Group Bhd holds a 15.1% stake.

Apart from the Starbucks coffee chain, BFood also operates the Kenny Rogers Roasters chain of restaurants in Malaysia. It also has restaurant and cafe chains in Indonesia, Singapore and other Southeast Asian countries.

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