KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) research is recommending investors sell their Berjaya Food Bhd (BFood) stock after second quarter financial year 2024 (Q2FY24) sales fell by 35 per cent quarter-on-quarter (QoQ) from the ongoing Starbucks boycott.
Starbucks' boycott has been ongoing since October 2023 due to the Israel-Gaza conflict.
The firm said BFood missed theirs' and concensus expectations of a core profit after tax and minority interest (Patami) of RM89.2 million and RM68.4 million respectively for the first half (1H) of FY24.
It instead reported a core loss after tax and minority interest (Latami) of RM23.6 million (1HFY23: RM70.2 million).
For the second quarter of FY24, BFood reported revenue of RM182.6 million (-35 per cent QoQ; -38 per cent YoY) translated to core Latami of -RM42.6 million (Q1FY24: RM19.0 million; 2QFY23: RM35.5 million).
Starbucks still made up the big chunk of the revenue for the quarter contributing about 90 per cent while the remaining came from Kenny Rogers Roasters (7 per cent) and others.
Q2FY24 registered six new Starbucks outlets opening, with one Starbucks Reserve, one drive through outlet and the remaining four comprising regular Starbucks stores.
HLIB research said despite the boycott, BFood is still targeting to open 40-45 new stores across Malaysia for FY24.
BFood also launched two Paris Baguette stores in TRX and 1Utama bringing the store count to five.
It added that to mitigate the challenging market conditions, BFood is focusing on cost optimisation, labour productivity and effective marketing strategy.
" Despite the cost optimisation we opine that situation will be challenging for BFood with the unfavourable forex as 55 per cent of the beverage costs purchased from the principal Starbucks International is dominated in US dollar," HLIB research said.
"Additionally, we opine that sales will take time to go back to normal considering the still intense Israel-Gaza conflict that is unfortunately seeing no signs of abating," it added.
HLIB research has cut its FY24/FY25/FY26 forecast for BFood by -41 per cent/-22 per cent/-18 per cent.
It also cut BFood's target price to 38 sen from 64 sen.
BFood's share price was down 3.5 per cent to 55 sen a share, with 3.8 million shares changing hands.