KUALA LUMPUR: CIMB Securities is positive on Berjaya Food Bhd's (BFood) expansion into the Nordic market, but flagged its high gearing ratio as a concern.
CIMB Securities in its note today said it is concerned about BFood's relatively high net gearing ratio of 62 per cent as of the end third quarter Q3) for financial year 2024 (FY24), which could potentially impede the company's ability to expand Starbucks operations in these new markets, especially if the boycott situation continues.
It also expects BFood's bottom line to remain in the red across its FY24 and FY25 due to the ongoing impact of boycott activities associated with the Israel-Palestine war.
"We only expect BFood's bottom line to return to the black in FY26," it said.
The firm has a 'Reduce' call on BFoodwith a target price of 35 sen.
To recap, Berjaya Food (International) Sdn Bhd (BFI), has been granted the rights to operate Starbucks stores in three Nordic countries: Denmark, Finland, and Iceland.
In Denmark, BFood will become the new licensed retail operator partner for the current franchise holder of Starbucks, Salling Group.
BFood is expected to further expand the existing store footprint of 17 stores as of June -24 (according to Starbucks Coffee International Inc [SCI]) established by Salling Group in Denmark.
CIMB Securities' channel checks indicate that Starbucks has five stores in Finland as of June 2024, through a licensed partnership with Select Service Partner (SSP) that covers key travel locations across Europe.
It also said that it believes there are currently no Starbucks stores in Iceland.
"At this juncture, there have been no details regarding the types and/or specifics of the agreement between BFI and SCI regarding Starbucks' operations in these three Nordic countries."
"Specifically, for Denmark, we believe BFood will operate Starbucks stores in the country via a licensing agreement given that Salling Group is the current franchise holder of Starbucks in Denmark. This differs from the master franchise agreement like the one BFood has for the Malaysia and Brunei markets," it said in its note.
BFood currently has more than 400 Starbucks stores across Malaysia and Brunei, 70 Kenny Rogers Roasters stores, seven Sala stores, and five Paris Baguette stores in Malaysia.
CIMB Securities said the Nordic venture also allows BFood to diversify its current operations outside of Malaysia and Brunei.
"We also believe that BFood's extensive track record in growing Starbucks in Malaysia, will allow BFood to scale up Starbucks operations in these new countries at a much faster pace," it said.