Friday 01 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on March 21, 2022 - March 27, 2022

BERJAYA group’s assets have attracted the attention of a suitor from Taiwan. The Taiwanese company is keen on the convenience store chain 7-Eleven and Starbucks franchises, according to four separate sources.

“The Taiwanese party has indicated its interest in writing several times,” says one of the sources.

In a response to queries by The Edge, Berjaya Corp Bhd (BCorp) replied, “We do regret that we are unable to provide any comment on your queries. Announcements will be made to Bursa Malaysia if there are any material developments.”

While it is not known who the Taiwanese party is, it is interesting to note that Uni-President Enterprises Corp — a listed conglomerate that is the largest food production company in Taiwan — operates both Starbucks and 7-Eleven outlets in that country.

In Malaysia, the 7-Eleven and Starbucks franchises are parked under different entities. 7-Eleven is under 7-Eleven Malaysia Holdings Bhd (SEM), which took Caring Pharmacy Group Bhd private in 2020, while Starbucks is parked under Berjaya Food Bhd (BFood).

Berjaya group founder Tan Sri Vincent Tan has a direct stake of 51.9% in SEM, while BCorp holds an 8.5% stake, according to SEM’s latest annual report.

Meanwhile, BCorp is the controlling shareholder in BFood with a 53.05% stake. As the largest shareholder of BCorp, Tan owns direct and indirect equity interest of 62.62% in BFood, as the company’s latest annual report shows.

BFood runs Starbucks coffee outlets in Malaysia and Brunei. On top of that, it also owns the Kenny Rogers Roasters (KRR) chain in Malaysia and Jollibean brand in Singapore.

Its share price has staged a strong rebound since January, up 67% from RM2.15 on Jan 27 to RM3.60 last Friday. The stock is considered a good proxy for the reopening of the economy. The sharp rise in share price has lifted BFood’s market capitalisation to nearly RM1.4 billion.

The coffee chain is BFood’s biggest earnings contributor, generating revenue of RM625.4 million or 87% of the group’s total revenue of RM717.34 million for the financial year ended June 30, 2021 (FY2021).

BFood saw an earnings recovery in the six-month period ended Dec 31, 2022 (1HFY2022), with a 135% year-on-year jump in net profit of RM50.5 million. The strong profit growth was mainly driven by higher same-store-sales growth, particularly from Starbucks café outlets.

In its latest results announcement, BFood noted that with the further easing of restrictions and the resumption of interstate and overseas travel, the board expected the overall operating results of the group to improve gradually for the remaining quarters of FY2022.

Last month, analysts raised their earnings forecasts for BFood for FY2022 to FY2024 after its 2QFY2022 net profit beat expectations.

Maybank Investment Bank Research (Maybank IB) in a note dated Feb 11 raised its earnings estimate for FY2022 by 76% to RM92.3 million, 48% to RM83.7 million (FY2023), and 42% to RM85.5 million(FY2024), after imputing higher earnings before interest and tax margins for KRR and Starbucks.

Maybank IB maintained its “buy” call on BFood and raised its target price to RM3.30 from RM2.60.

Hong Leong Investment Bank (HLIB) too reiterated its “buy” call on Bfood, with a higher target price of RM3.80 against RM2.69 previously.

The first Starbucks store opened in Kuala Lumpur on Dec 17, 1998. Currently, Starbucks Malaysia has more than 320 stores nationwide, including 58 drive-thru stores and 10 Reserve™ stores. Starbucks Malaysia is the first globally to open a Starbucks Signing Store for the deaf. The store opened in 2016.

As for 7-Eleven, it is the first 24-hour convenience store operator in Malaysia. Its first store opened on Oct 9, 1984.

According to its website, 7-Eleven Malaysia is the single largest convenience store chain, with more than 2,400 stores nationwide serving over 900,000 customers daily.

For FY2021, the convenience store segment contributed 64% or RM1.81 billion to SEM’s total revenue of RM2.89 billion. The remaining RM998.5 million came from the pharmaceutical segment — an asset that it acquired for earnings diversification.

In terms of segment profit, the convenience store segment contributed RM98.7 million or 65% to the profit from operations in FY2021.

Although the convenience store business is a large contributor to SEM’s total profit in FY2021, it saw slower y-o-y earnings growth owing to the Movement Control Order (MCO).

Revenue from the convenience store segment fell RM252.9 million or 12.3% to RM1.8 billion as a result of shorter operating hours. Excluding corporate exercise expenses, the convenience store segment recorded a core profit after tax of RM40.2 million, a decline of 16.1% y-o-y.

Maybank IB on March 1 wrote in a report that in light of improved business conditions, SEM planned to open around 100 new convenience stores (7-Eleven stores: +50, 7-Café stores: +50) and 20 to 25 new pharmacies under the Caring group.

It noted that total store count stood at 2,427 (+14 stores y-o-y) convenience stores and 191 pharmacy stores as at end-December 2021.

The research house said SEM’s new 7-Café concept store will spearhead the group’s renewed focus on fresh food in order to widen margins and diversify from its dependency on tobacco sales.

“SEM’s outlook is positive in FY2022 given higher store traffic and average revenue per store, alongside easing movement restrictions. As consumers re-adjust to post-pandemic routines, dry and fresh food uptake at its stores will continue to increase, potentially leading to margin expansion,” it noted, keeping its “buy” call on the stock and target price of RM1.80.

SEM’s share price did not fare as well as that of its sibling, BFood. It has been hovering in the range of RM1.45 to RM1.65 over the past one year. The company is valued at RM1.8  billion at last Friday’s closing price of RM1.46.

Last year, BCorp revealed plans to dispose of about RM5 billion worth of non-core assets over the next five years and wants to halve its debts of RM5 billion in three years.

In the past year, BCorp did divest a number of assets. The group disposed of a 30% stake in its associated company, Razer Fintech Holdings Ltd, for RM161 million. It is left with a 19% stake in Razer Fintech after the sale.

It also sold its 70% stake in Berjaya China Motor Sdn Bhd for about RM13.28 million in cash and disposed of its printing business, Graphic Press Group Sdn Bhd, for about RM26.1 million.

In addition, BCorp divested its entire 51% stake, comprising 6.12 million ordinary shares, in Berjaya Auto Alliance Sdn Bhd (BAASB) to Bermaz Auto Bhd (BAuto) and other shareholders of BAASB for RM6.67 million cash. BAASB is involved in the distribution of vehicles under the Peugeot marque in Malaysia.

Earlier this year, BCorp announced that its subsidiary was disposing of its entire 71.73% stake in Berjaya Higher Education Sdn Bhd to Nanyang International Education Group Sdn Bhd. Berjaya Higher Education owns Berjaya University College.

It is apparent that BCorp is on a divestment spree. However, 7-Eleven and Starbucks are seen as the flagships of the Berjaya group in addition to Sports Toto.  Would the conglomerate want to part with the income-generating assets should a firm offer materialise from the attention it has garnered?

And with news in theedgemarkets.com last Friday that Jalil Rasheed could be stepping down as CEO soon to pursue personal interests, how would this impact BCorp’s strategies moving forward?

Whatever happens, like for most deals, the offer price and valuation are always among  the key determining factors to decide if a deal would be sealed.

 

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