KUALA LUMPUR: RHB research has recommended a "Sell" call on Berjaya Food Bhd after its ground checks of Starbucks outlets showed at least a 30 per cent fall in foot traffic, as a result of the ongoing boycott of Starbucks Coffee due to the Israel-Hamas conflict.
Starbucks made up 91 per cent of the group's revenue for the first quarter of financial year 2024.
The firm visited several Starbucks Coffee mall outlets during peak hours and noted the relatively lacklustre foot traffic (we estimate 30- 40 per cent down vs usual), despite the shopping centres thebeing crowded and most of its competitors, having regular footfalls.
RHB research said in a note released yesterday, the situation is worse than it expected, and it may have compelled Starbucks Coffee to be more aggressive in its promotion, which will likely mean material gross profit margin erosion.
It slashed forecast financial year 2024-2026 net profit by 21 per cent, 17 per cent and 7 per cent after further toning down its sales growth and gross profit margin assumptions to reflect the subdued sales, increased promotional efforts, and efforts to address the aftermath of the boycott.
It also cut its target price for BFood by 24 per cent to 46 sen.
The stock closed at 59.5 sen a share yesterday.
It also highlighted that the timing of the boycott is inopportune, since the year-end normally constitutes a seasonal peak period.
"Our outlook for BFood has turned cautious, as the ongoing Starbucks Coffee boycott could last longer than what we initially expected, if there is no near-term resolution to the Israel-Hamas conflict."
"Also, the post-boycott recovery may not be straightforward and it may take BFood much effort to regain its market share, in view of the intense competition," RHB research report said in its report.
The firm believes BFood's share price has yet to reflect downside risks to earnings.
RHB research said the brand boycott may have led consumers to try alternatives – which gave competitors a chance to capitalise on such behaviour and chip down Starbucks Coffee's market share. "These gains may be sticky, especially among the less brand conscious consumers who prefer to "grab and go" when it comes to buying their beverages. This would also undermine BFD's ambitious expansion plan (FY24F: 40-50 stores) within the anticipated timeframe," it said.