BJFOOD

 Long Term Charts

Key observations:
1. First listed Mar 2011, coming to 13 years.
2. Currently on 4th wave down.
3. The earlier 3 major waves takes many years to play out.

a. Wave 1:  Mar 2011-Dec 2014 (3.75 years):  From 8 sen to 65 sen or +700%
b. Wave 2:  Dec 2014-Jun 2020 (5.5 years):  From 65 sen down to 20 sen or -70%
c. Wave 3:  Jun 2020-Feb 2023 (2.5 years):  From 20 sen up to RM1.16 or +480%

4. Current Wave 4 down:  Feb 2023-today (1 year+?):  From 1.16 down to current 0.54 or -53% - fall not over yet.

5. This long term chart pattern is not typical - normally, in a healthy free market / business, the upwave tend to rise gradually over a long period, the downwave shorter period, but here it's reverse.  Typically due to man-made factors rather than free market factors - e.g. something plus substantial shareholders.  Long term investors need to be careful (not normal full position sizing).  

Some interim questions - Downtrending is clear, but where is the bottom?

Chart wise, 2 possible magnets - 52 sen, and 45.5 sen.

Investment Thesis - What prompted to look closer?

BJCorp is often associated with Starbucks, Israel-Hamas conflict, Boycotting of Starbucks with adverse Revenue and profitability impact.

Temporary war causing temporary depressed prices is often a good reason to look closer, if the conflict is indeed a temporary one and a recovery to follow.  

However, there are other factors too once the conflict ends.

Reading quickly the Annual report (30/6/2023, before Israel-Hamas conflict), some keywords come into mind:  

- Number of outlets (Starbucks 393, Kenny Rogers 80, Jollibean 28 ...)

Challenges:  

- Rising inflation (impact to household, BFOOD revenue somewhat discretionary)

- Rising interest rates (expensive to borrow monies)

- Economic growth rate (e.g. slow down previously from Russian-Ukraine conflict, Covid, disruptive, trade-supply chains, impact to higher energy prices, costs, etc.)

- Domestic economy buying power in the population, etc.  

Generally, not too difficult to understand this business.

Future prospects:  Starbucks originally planned to add 40-45 new stores in 2024, but Israel Hamas conflict probably put a pause / huge dent to that growth plan.  The threat now is - will they have to close stalls instead?  Not closing stalls is probably a huge win already, but that depends on the coming quarterly reports. 

Financials

Looks like FYE June 2023 is peak revenue and peak DPS.

Dividends - 2023 3.50 sen was a massive one-time spike, not expected to repeat.   It will come down for sure in FYE2024.   More normal is 0.40 sen to 1.10 sen range.  The question is will 2024 DPS be higher than 2020 40 sen Covid or worse than Covid?  My guess it may be similar but nobody knows - Covid during lockdown is much worse than today from customer traffic perspective, but then, the lock down was not 365 days/year where boycott is very persistent daily.  If so, we may not have seen the worse yet.

  

Net Asset 28 sen vs current price of 54 sen, i.e. still trading at a premium (normal).

Last Quarterly report 15 Nov 2023, for period ending 30/9/23.

Next Quarterly report likely mid Feb 2024, for period ending 31/12/23.

Q3 showed minimal drop in Revenue because date is prior the Israel-Hamas conflict and boycotts.

Notwithstanding, EPS dropped massively already from 1.96 sen down to 1.08 sen for YoY (3 months).  It appears, the business was already in some difficulty prior to the conflict.

Out of the past 10 years, if we ignore top 3 year earnings in 2015, 2022, 2023, the historical EPS ranges from loss (2020 Covid, -0.97sen) to around 2 sen, averaging perhaps 0.5 to 1.5 sen say.

Market eager awaits BFOOD quarterly results due mid Feb.

Quick glance - liquidity and leverage within acceptable parameters / no cause for unusual concerns.

Is current 54 sen price cheap to enter?

Price has already fallen 53%.  Can it fall more?

So much uncertainties:

- Impact to earnings and dividend yield.

- When Israel-Hamas conflict will end (demands from both sides are so high, hard to see when the conflict will end).

- How many bad news will be announced?  Will it just be one when next quarterly earnings is announced?  Or more than just one bad news?

- There's already signs, even before the Israel-Hamas conflict of financials deteriorating.  Will they flush it all out in this quarter, or try to spread the adverse results over the coming quarters?

What could be the catalysts to cause price to stop falling and do a U-turn?

No position yet.

Trading or Investing?

My personal interest for this stock is looking to invest for the long term to provide diversification to my current 40+ stock portfolio.   Not looking to trade this stock short term, mainly due to personal reasons (my commitments only allows me to check prices after trading hours and weekends/holidays).

So, is this stock worth to invest?  

Question 1:  Does it meet my criteria of quality business?  Pure glance at last 10 year EPS and DPS and looking at what's happening now suggest that the quality is just average.   A couple of the brands may be above average - Starbucks, Kenny Rogers, the rest not too convincing over next 10 year period.  The boycott may be just bad luck, but may also last for quite a while.  However, 13 year price action from 8 sen to over RM1 after a decade is extremely convincing. 

Question 2:  Does it provide a high enough sustainable dividends over the next 10 years?  

- Prudently, 1 sen p.a. average over 50 sen entry price is only 2%

- 2 sen p.a. is 4% dividend yield (less prudent scenario).

Hard to know, but to be prudent, should not assume more than 2% p.a. dividend yield i.e. likely dividend yield over the next 5-10 years may be lower/on par with FD.  

Question 3:  Management quality?

- Nothing negative that stands out.

Question 4:  Is the price attractive enough?

Is the Price Attractive Enough to Invest?

Due to low long term sustainable dividend yield, the investor will need to buy low, rely on price gains, in order to beat the MAYBANK benchmark return of 9% total returns per annum.   

If long term dividend yield is say 2% p.a., then, to beat 9% requires 7% p.a. price gains to match MAYBANK.  

Doubling price at 7% p.a. would require 10 years.

The question is - is 50 sen attractive enough?

How CERTAIN are we (not how possible, but how CERTAIN) that BFOOD will eventually get back to RM1 in less than 10 years from entry?  

The safe answer is not 100% certain.  Why?  

1. How bad will Q4 revenues and financials be?

2. How long will the conflict and boycott last?

3. How large will the size of the loss of revenue and financials?  Market will look at this with great interest, because it will tell us with greater certainty how "sticky" the brands are.   If substantial loss, then,  brand is not that "sticky"i.e. recovery will take longer, and vice versa.

4. Also looking to see if Management will use this window to further flush out all other cockroaches, or will they try to defend to show a small impact to stop the price from falling further? (then the drop will be more prolonged).

Analysts views

https://theedgemalaysia.com/node/693123 (7 December 2023)

From Sep 2023 to Nov 2023, IB were still calling for Buys and Holds when Prices were trading much higher than today, when prices have already peaked and is falling.   Here, it doesn't pay to follow them.

In November, MAYBANK called for a Sell targeting 60 sen.  The first sell caller still get the TP too high, as today is 54 sen already.   Nobody can be precise, don't judge MAYBANK too harshly.  But they are better to get the direction right calling for a SELL than a Buy.

In December, RHB changed their minds, calling to BUY with a TP of 1.29 and then flipping to a SELL with a TP of 46 sen.   Anyone who followed RHB will LOSE monies.   But again, don't judge too harshly, as nobody really knows the markets.

 

The litmus test is this coming quarterly report.   How many analysts will change their minds from BUY/HOLD to SELL?

Do we have time to invest at a better more attractive price?

My gut says yes.

"V" recovery is less likely (when measure over 1 year period) given:

- Past 10 years financial history

- P/NTA still a large premiums

- Low long term sustainable dividend yield (the 2023 one time high is in the past).

- Past 10 years price history

- What we know about the Israel-Hamas conflict

- Unlikely for Tun M or politicians to come out to reverse their boycotting calls previously (?)

- Questions about how sticky are the brands.

- Not enough Analysts coming out to call for a SELL given how likely / how catastropic the financials will turn out this coming mid Feb. 

Disclosure:  No position (yet).