KUCHING: Berjaya Food Bhd’s (Berjaya Food) proposed disposal of its Kenny Rogers Roasters (KKR) operations in Indonesia for RM3.1 million has been deemed to bereasonable by analysts at AmInvestment Bank Bhd (AmInvestment Bank).
Last Friday, Berjaya Food announced an agreement to dispose of its entire stake in PT Boga – the company that operates KKR restaurants in Indonesia.
The actual cash consideration for the disposal was a nominal sum of RM0.32 million but the disposal agreement also included the buyers of KKR Indonesia to settle a portion of the inter-company debt owing by PT Boga to Bfood amounting to RM3.1 million.
The original cost of investment Berjaya Food placed in PT Boga was RM33.98 million and has been fully impaired to date.
With this in mind, AmInvestment Bank declared the RM3.1 million valuation of KKR Indonesia ‘is fairly reasonable’ as with a network of 10 stores country-wide, each store would be valued at RM310,000 per store.
“This is in the region of standard capital expenditure of RM400,000 to RM500,000 per store. Recall that these stores may be supobtimal as KKR Indonesia has been loss making for more than five years now,” said the bank.
In financial year 2015 (FY15), KKR Indonesia recorded a total loss of RM6.4 million, followed by a RM5.2 million loss in FY16 and RM9.3 million loss in FY17.
“Following the disposal, management has also guided that Bfood will recognise a one-off loss on the disposal of RM12 million in the third quarter (3Q) of FY18 despite the transaction being announced in 2QFY18,” added the bank.
The timing of the announcement which was expected at the end of 2QFY18 was delayed due to an extended approbal process taken by Indonesian authorities said the bank.
In light the disposal of KRR Indonesia, the bank is adjusting their FY18 to FY19 forecasted earnings by 5 and 7 per cent, and is expecting Berjaya Food’s effective tax rate which has a year average of 63 per cent to be curtailed to 35 per cent going forward.
Continuing to like Bfood for its attractive growth off a low base, its innovative Starbucks brand and upcycle in consumer sentiment, AmInvestment Bank guided that they would maintaining their ‘Buy’ stance on its stock with a higher fair value of RM1.91 per share in light of its revised earnings.
“Despite the optimism, Berjaya Food doesn’t seem like it’s completely out of the woods yet in terms of impaired assets as the bank also added that key risks to their forecasts are failure to curb losses from KRR Malaysia and Jollibean – the group’s street snack brand specialising in soy-related products.
According to the bank, the group’s Jollibean asset was also expected to be disposed of by 3QFY18, but this plan has been palced on the back burner due to the group’s new strategic intention to realise greater inherent strategic valued tied to the Singapore-based asset.”