Index

Food & BeveragesMalaysia
October 3, 2014

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
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Riding on strong growth
BFood is entering an exciting growth phase with its more aggressive
expansion plans and acquisition of the remaining stake in Starbucks.
Its plan to distribute Starbuckss FMCG products in Malaysia will also
boost its EPS considerably, which we have factored in conservatively.

We initiate coverage on BFood with
an Add call and RM4.33 target price
based on 23.7x CY16 P/E, a 30%
premium over the peer average, in
view of its superior earnings growth.
Key re-rating catalysts include strong
earnings growth from Starbucks, the
recovery of KRRs Malaysian and
Indonesian performance, and the
injection of Starbucks FMCG and
other franchise businesses into the
group. Besides Old Town, BFood is
the only company that offers exposure
to the FMCG and casual F&B
restaurant chain industry in Malaysia.
Large room to grow
BFood holds the franchise rights of
Kenny Rogers Roasters (KRR) in
Malaysia, Indonesia and Cambodia as
well as the franchise rights of
Starbucks in Malaysia and Brunei. It
is also the owner of Jollibean
worldwide. While its KRR business in
Indonesia has not been performing
well in the past two years due to the
weaker consumer spending and lack
of economies of scale, Indonesia offers
huge long-term growth prospects
given its large population base. In
Cambodia, KRR is one of the first few
franchise brands that forayed into the
fast-growing untapped market. While
Malaysia and Singapore are relatively
saturated compared to Indonesia and
Cambodia, we believe that there is still
more room to grow given that its
penetration rate in the suburban areas
is still low. BFood is also looking to
replicate Jollibeans simple business
model to countries such as China,
Indonesia and the Philippines,
providing more growth potential.
Boost from Starbucks
Starbucks Malaysia is not only the
largest coffee chain in Malaysia with
43% market share, it is also the top
performing Starbucks franchise
globally with the strongest SSSG
(11-24%) for five consecutive years. It
had just completed its acquisition of
the remaining 50% of Starbucks on 18
Sep 2014. As part of the agreement, it
will open at least 25 stores/year in the
next five years, pointing to strong
growth ahead. Aggressive expansion
aside, we are particularly excited
about its plan to distribute Starbucks
FMCG products in Malaysia that will
give its earnings a strong boost.
More acquisitions ahead
BFoods parent company owns the
franchise rights of Wendys, Papa
Johns, KRR China and Krispy Kreme.
These businesses could be injected
into BFood once they turn profitable.
Berjaya Food Berhad
COMPANY NOTE
BFD MK / BJFO.KL

Current RM2.99

Market Cap Avg Daily Turnover Free Float Target RM4.33
US$287.8m US$0.90m 48.0%
Prev. Target N/A
RM935.1m RM2.86m 269.1 m shares
Up/Downside 44.8%
Conviction| |

Sources: CIMB. COMPANY REPORTS

Notes from the Field

EING Kar Mei, CFA
T (60) 3 2261 9085
E karmei.eing@cimb.com

Company Visit Expert Opinion
Channel Check Customer Views

Show Style "View Doc Map"

The F&B sector is getting
more competitive and we see a
slowdown, especially after the last
budget announcement. Starbucks,
however, is different and we
continue to see strong growth in all
our stores."
Dato Francis Lee, CEO

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67
95
123
151
179
207
1.10
1.60
2.10
2.60
3.10
3.60
Price Close Relative to FBMKLCI (RHS)
Source: Bloomberg
5
10
15
20
Oct-13 Jan-14 Apr-14 Jul-14
V
o
l
m

EFAPChartPriceVolRelDaily|

Financial Summary
Apr-13A Apr-14A Apr-15F Apr-16F Apr-17F
Revenue (RMm) 121.9 150.4 399.9 656.0 806.1
Operating EBITDA (RMm) 19.2 14.5 59.5 114.3 133.6
Net Profit (RMm) 18.63 22.67 35.42 57.46 74.31
Core EPS (RM) 0.05 0.06 0.09 0.15 0.20
Core EPS Growth 0.0% 21.7% 56.3% 62.2% 29.3%
FD Core P/E (x) 60.27 49.52 31.69 19.54 15.11
DPS (RM) 0.035 0.043 0.047 0.077 0.099
Dividend Yield 1.17% 1.42% 1.58% 2.56% 3.31%
EV/EBITDA (x) 57.64 76.42 22.35 11.36 9.49
P/FCFE (x) NA NA 63.05 39.29 44.78
Net Gearing (13.4%) (8.5%) 60.0% 47.9% 37.1%
P/BV (x) 7.86 6.90 3.17 2.93 2.67
ROE 14.8% 13.7% 15.6% 18.5%
% Change In Core EPS Estimates
CIMB/consensus EPS (x) 1.01 0.99 1.16

2.99
4.33
1.37 3.18
Target
52-week share price range
Current

SOURCE: CIMB, COMPANY REPORTS
Berjaya Food BerhadMalaysia

October 3, 2014

2

PEER COMPARISON

Research Coverage
Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside
Berjaya Food Berhad BFD MK MY ADD 288 2.99 4.33 44.8%
Minor International MINT TB TH ADD 4,509 36.50 42.00 15.1%
Mitra Adi Perkasa MAPI IJ ID REDUCE 734 5,375 4,800 -10.7%
OldTown Berhad OTB MK MY NOT RATED 237 1.72 -100.0%

0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Rolling P/BV (x)
Berjaya Food Berhad Minor International
Mitra Adi Perkasa OldTown Berhad

EFACChartValnBig1|

0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
12-month Forward Rolling FD P/E (x)
Berjaya Food Berhad Minor International
Mitra Adi Perkasa OldTown Berhad

EFACChartValnBig2|

0.0%
3.6%
7.1%
10.7%
14.3%
17.9%
21.4%
25.0%
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Peer Aggregate: P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

0.0%
8.6%
17.1%
25.7%
34.3%
42.9%
51.4%
60.0%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Peer Aggregate: 12-mth Fwd FD P/E vs FD EPS Growth
12-mth Fwd FD P/E (x) (See Footnote) (lhs) FD EPS Growth (See Footnote) (rhs)

EFACChartValnBig4|

Valuation
FD P/E (x) (See Footnote) P/BV (x) EV/EBITDA (x)
Dec-14 Dec-15 Dec-16 Dec-14 Dec-15 Dec-16 Dec-14 Dec-15 Dec-16
Berjaya Food Berhad 35.95 22.40 16.30 3.85 3.00 2.75 28.12 13.62 10.03
Minor International 32.28 25.39 20.80 5.19 4.57 3.98 23.83 18.98 15.82
Mitra Adi Perkasa 34.88 23.40 16.19 3.39 3.01 2.58 9.56 7.85 6.42
OldTown Berhad NA NA NA NA NA NA NA NA NA

Growth and Returns
FD EPS Growth (See Footnote) ROE (See Footnote) Dividend Yield
Dec-14 Dec-15 Dec-16 Dec-14 Dec-15 Dec-16 Dec-14 Dec-15 Dec-16
Berjaya Food Berhad 46.3% 60.4% 37.4% 13.9% 15.1% 17.6% 1.53% 2.23% 3.07%
Minor International 6.0% 27.2% 22.0% 17.0% 19.1% 20.5% 1.02% 1.30% 1.59%
Mitra Adi Perkasa -22.0% 49.0% 44.5% 10.1% 13.6% 17.2% 0.61% 0.47% 0.71%
OldTown Berhad 0.00% 0.00% 0.00%

SOURCE: CIMB, COMPANY REPORTS
Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends.
NPAT/EPS values for calculations and valuations are based on recurring and normali sed values for GAAP and IFRS accounting standard companies respectively.

October 3, 2014

3

Stronger earnings growth from
the full-year consolidation of
the remaining 50% stake in
Starbucks
Higher capex due to the
acquisition of the remaining
50% stake in Starbucks

Share price info
Share px perf. (%) 1M 3M 12M
Relative -0.4 91.8 75.2
Absolute -2 89.2 79
Major shareholders % held
Berjaya Corp 52.0
PNB 5.6

0.00%
3.33%
6.67%
10.00%
13.33%
16.67%
20.00%
0.00
1.00
2.00
3.00
4.00
5.00
6.00
P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

0.0%
11.7%
23.3%
35.0%
46.7%
58.3%
70.0%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
12-mth Fwd FD Core P/E vs FD Core EPS
Growth
12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)

Profit & Loss
(RMm) Apr-13A Apr-14A Apr-15F Apr-16F Apr-17F
Total Net Revenues 121.9 150.4 399.9 656.0 806.1
Gross Profit 54.7 66.9 183.5 316.3 383.5
Operating EBITDA 19.2 14.5 59.5 114.3 133.6
Depreciation And Amortisation (7.2) (7.3) (16.4) (25.7) (23.3)
Operating EBIT 12.0 7.2 43.1 88.6 110.3
Financial Income/(Expense) 0.4 (0.1) (8.1) (12.2) (9.9)
Pretax Income/(Loss) from Assoc. 9.0 17.5 10.8 0.0 0.0
Non-Operating Income/(Expense) 0.0 0.0 0.0 0.0 0.0
Profit Before Tax (pre-EI) 21.4 24.6 45.7 76.3 100.4
Exceptional Items
Pre-tax Profit 21.4 24.6 45.7 76.3 100.4
Taxation (4.1) (4.5) (12.8) (21.4) (28.1)
Exceptional Income - post-tax
Profit After Tax 17.3 20.1 32.9 55.0 72.3
Minority Interests 1.3 2.6 2.5 2.5 2.0
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit 18.6 22.7 35.4 57.5 74.3
Recurring Net Profit 18.6 22.7 35.4 57.5 74.3
Fully Diluted Recurring Net Profit 18.6 22.7 35.4 57.5 74.3

Cash Flow
EBITDA 19.2 14.5 59.5 114.3 133.6
Cash Flow from Invt. & Assoc.
Change In Working Capital 15.1 17.0 65.7 34.0 25.6
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense 14.6 23.6 21.0
Other Operating Cashflow (19.2) (14.3) (5.7) (25.7) (23.3)
Net Interest (Paid)/Received 0.0 (0.2) (8.3) (12.4) (10.0)
Tax Paid (3.0) (6.4) (12.8) (21.4) (28.1)
Cashflow From Operations 12.1 10.6 113.2 112.4 118.9
Capex (10.5) (15.9) (55.0) (55.0) (55.0)
Disposals Of FAs/subsidiaries 0.1 0.1 0.0 0.0 0.0
Acq. Of Subsidiaries/investments (33.4) 0.0 0.0 0.0 0.0
Other Investing Cashflow 1.4 2.9 (270.4) 1.2 1.2
Cash Flow From Investing (42.4) (12.8) (325.4) (53.8) (53.8)
Debt Raised/(repaid) 230.0 (30.0) (40.0)
Proceeds From Issue Of Shares 20.7 5.4 5.4 0.0 0.0
Shares Repurchased
Dividends Paid (7.5) (9.9) (17.7) (28.7) (37.2)
Preferred Dividends
Other Financing Cashflow 0.1 6.5 0.0 0.0 0.0
Cash Flow From Financing 13.3 2.0 217.7 (58.7) (77.2)
Total Cash Generated (17.0) (0.2) 5.5 (0.2) (12.1)
Free Cashflow To Equity (30.3) (2.2) 17.8 28.6 25.1
Free Cashflow To Firm (30.3) (2.1) (203.9) 70.9 75.0

BY THE NUMBERS
SOURCE: CIMB RESEARCH, COMPANY

October 3, 2014

4

Increase in debt due to the
acquisition of Starbucks, which
will be funded by borrowings
Expansion in margins due to
the 7 months contribution from
100% stake in Starbucks
Stronger KRR growth due to
the recovery of KRR Malaysia
and new openings
Much slower growth as FY14
sales were boosted by the full
impact from the acquisition of
Jollibean in Dec 2012
First full-year consolidated
contribution from Starbucks

Balance Sheet
Total Cash And Equivalents 19.2 19.6 25.2 25.0 12.9
Total Debtors 17.6 19.4 20.0 26.2 32.2
Inventories 3.9 4.3 13.0 17.0 21.1
Total Other Current Assets 0.0 0.0 0.0 0.0 0.0
Total Current Assets 40.7 43.3 58.2 68.2 66.3
Fixed Assets 30.2 38.9 174.5 204.8 237.7
Total Investments 80.0 94.5 0.0 0.0 0.0
Intangible Assets 16.0 16.1 454.5 454.5 454.5
Total Other Non-Current Assets 0.2 0.1 0.1 0.1 0.1
Total Non-current Assets 126.4 149.5 629.1 659.5 692.3
Short-term Debt 0.0 5.9 5.9 5.9 5.9
Current Portion of Long-Term Debt
Total Creditors 14.6 17.0 54.1 88.3 114.1
Other Current Liabilities 3.6 2.6 40.6 50.6 60.6
Total Current Liabilities 18.2 25.6 100.7 144.9 180.7
Total Long-term Debt 0.0 230.0 200.0 160.0
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities 0.0 0.0 0.0 0.0 0.0
Total Non-current Liabilities 0.0 0.0 230.0 200.0 160.0
Total Provisions 5.1 5.1 5.1 5.1 5.1
Total Liabilities 23.2 30.7 335.8 350.0 345.8
Shareholders' Equity 142.7 162.8 354.6 383.4 420.5
Minority Interests 1.1 (0.6) (3.1) (5.6) (7.6)
Total Equity 143.8 162.1 351.5 377.7 412.9

Key Drivers
ASP (% chg, main prod./serv.) N/A N/A N/A N/A N/A
Unit sales grth (%, main prod./serv.) 20.3% 4.4% 13.0% 9.9% 9.4%
Util. rate (%, main prod./serv.) N/A N/A N/A N/A N/A
ASP (% chg, 2ndary prod./serv.) N/A N/A N/A N/A N/A
Unit sales grth (%,2ndary prod/serv) N/A N/A N/A 98.4% 19.8%
Util. rate (%, 2ndary prod/serv) N/A N/A N/A N/A N/A
ASP (% chg, tertiary prod/serv) N/A N/A N/A N/A N/A
Unit sales grth (%,tertiary prod/serv) N/A 146.7% 15.3% 6.6% 6.4%
Util. rate (%, tertiary prod/serv) N/A N/A N/A N/A N/A
Unit raw mat ASP (%chg,main) N/A N/A N/A N/A N/A
Total Export Sales Growth (%) N/A N/A N/A N/A N/A
Export Sales/total Sales (%) N/A N/A N/A N/A N/A

BY THE NUMBERS

Key Ratios
Revenue Growth 0% 23% 166% 64% 23%
Operating EBITDA Growth 0% (24%) 310% 92% 17%
Operating EBITDA Margin 15.7% 9.6% 14.9% 17.4% 16.6%
Net Cash Per Share (RM) 0.05 0.04 (0.56) (0.48) (0.41)
BVPS (RM) 0.38 0.43 0.94 1.02 1.12
Gross Interest Cover N/A 46.75 5.22 7.17 11.08
Effective Tax Rate 19.2% 18.2% 28.0% 28.0% 28.0%
Net Dividend Payout Ratio 49.2% 51.4% 50.0% 50.0% 50.0%
Accounts Receivables Days 52.62 44.90 17.99 12.90 13.24
Inventory Days 21.01 17.76 14.53 16.15 16.46
Accounts Payables Days 79.15 69.12 59.98 76.73 87.41
ROIC (%) 24.1% 14.4% 72.9% 15.6% 19.6%
ROCE (%) N/A 4.6% 11.4% 15.1% 18.9%

SOURCE: CIMB RESEARCH, COMPANY

October 3, 2014

5

Riding on strong growth
1. BACKGROUND
1.1 The operator of Kenny Rogers, Starbucks and Jollibean
Berjaya Food (BFood) was incorporated in Malaysia on 21 Oct 2009 and listed
on Bursa Malaysia on 3 Mar 2011. As part of the listing scheme, Berjaya
Roasters (M) Sdn Bhd which operates the Kenny Rogers Roasters (KRR) chain
of restaurants in Malaysia was acquired and became a wholly-owned subsidiary
of BFood in Jan 2011. Since its listing, BFood went on an acquisition spree and
transformed itself into a diversified regional player in the F&B arena.
In January 2012, 10 months after listing, BFood expanded its KRR franchise
business to Java Island and Bali, Indonesia. This is done via a conditional joint
venture agreement with PT Mitra Samaya, PT Harapan Swasti Sentosa and PT
Boga Lestari Sentosa, Indonesia. BFood acquired 51% of the joint venture, PT
Boga Lestari Sentosa (PT Boga), for a cash consideration of RM1.91m. BFood
has the option to increase its equity interest in PT Boga from 51% to 70% until
2018.
A year later (19 Jul 2012), BFood further expanded its business to operating a
coffee chain by acquiring a 50% stake (remaining 50% stake held by Starbucks
Coffee International, Inc) in Berjaya Starbucks Coffee Company Sdn Bhd for a
cash consideration of RM71.7m.
On 7 Dec 2012 (five months after the acquisition of Berjaya Starbucks), BFood
acquired a 100% stake in Jollibean Foods Pte Ltd, Singapore for a cash
consideration of RM19.02m.
On 7 Oct 2013, only 10 months after the acquisition of Jollibean Singapore, it
ventured into the Starbucks business in Brunei where it owns 80%, with the
remaining 20% held by Deluxe Daily Food Sdn Bhd. It paid RM6.2m for this
joint venture.
On 9 Jul 2014, it further expanded its KRR business into Cambodia, where it
owns a 70% stake.
Two weeks later, to fully reap the benefits of the fast-growing Starbucks
business, it proposed to acquire the remaining 50% stake of Berjaya Starbucks
not owned by BFood for a total cash consideration of US$88m (RM279.5m).
This proposal was completed on 18 Sep 2014.

Figure 1: Major milestone
Date Major milestones
8-Mar-11
Listed on main market of Bursa Malaysia
26-Jul-11 Entered into a conditional joint venture agreement to develop and operate KKR franchise in Java
Island and Bali, Indonesia
19-Jul-12 Acquired 50% equity interest in Berjaya Starbucks for a cash consideration of RM71.7m.
7-Dec-12 Acquired 100% equity interest in Jollibean Foods Pte Ltd for a cash consideration of RM19.02m
7-Oct-13 Entered into a joint venture cum shareholders' agreement with Deluxe Daily Food Sdn Bhd for the
subscription of 80% stake to undertake the operations of "Starbucks Coffee" chain of cafes in Brunei
for a cash consideration of RM6.2m.
8-Jul-14 Incorporated Berjaya Roasters (Cambodia) Limited to develop and operate the KKR chain of
restaurants in Cambodia. Bfood owns 70% stake in the company.
23-Jul-14 Entered into a conditional share purchase agreement with Starbucks Coffee International for the
proposed acquisition of the remaining 50% equity interest in Berjaya Starbucks for a cash
consideration of US$88m (RM279.5m).

SOURCES: CIMB, COMPANY REPORTS

Table of Contents
1. BACKGROUND p.5
2. OUTLOOK p.11
3. RISKS p.22
4. FINANCIALS p.24
5. VALUATION AND RECOMMENDATION p.29


October 3, 2014

6

Figure 2: Corporate structure


1.2 Major shareholders and management
BFood is 51% owned by Berjaya Corp which is founded by Tan Sri Dato Seri
Vincent Tan an influential and well-known businessman and entrepreneur
with diverse interests (both direct and indirect) in stockbroking, property
development, gaming, manufacturing, trading, hospitality, Internet-related
business, utilities, media, food and beverages, telecommunications, insurance
and education through various public and private companies. Berjaya Corp is
currently headed by Tan Sri Dato Seri Vincent Tans son, Dato Robin Tan
Yeong Ching, who is also the executive chairman of BFood.
Dato Francis Lee Kok Chuan is the CEO of BFood. He was appointed a director
and CEO of the company on 20 May 2010. He has over 10 years of working
experience in the fields of accounting, auditing and corporate services. He also
has over 15 years of experience in the food and beverage business. He started
his career in 1983 with Messrs Ernst & Whinney Kuala Lumpur (now known as
Ernst & Young). He joined Berjaya Land Berhad (BLand) as Senior Manager of
Internal Audit Department in 1994 and was responsible for its internal audit
functions. In 1996, he was promoted to the post of General Manager of Internal
Audit Department of BLand. Subsequently, he was promoted to Senior General
Manager of Operations of BLand in Sep 1998. In that role, he was also
appointed a director in several other private limited companies in the Berjaya
Group of Companies, such as Berjaya Starbucks Coffee Company Sdn Bhd and
Berjaya Roasters (M) Sdn Bhd in 1998 and Roasters Asia Pacific (M) Sdn Bhd
in 1999. In 2000, he was transferred to Berjaya Group Berhad (BGroup) and
was appointed an executive director of BGroup. In 2001, he was transferred to
Berjaya Capital Berhad and was appointed an executive director of Berjaya
Capital Berhad.

100%


October 3, 2014

7

1.3 Expanded from Malaysia to Indonesia, Singapore and
Brunei
As at end-Apr 2014, BFood has 78 KRR outlets in Malaysia, 24 KRR outlets in
Indonesia, 170 Starbucks outlets in Malaysia, one Starbucks outlet in Brunei, as
well as 47 and two Jollibean outlets in Singapore and Malaysia respectively.

Figure 3: Number of stores by business
Title:
Source:
Please fill in the values above to have them entered in your report
78
24
170
1
47
2
0 20 40 60 80 100 120 140 160 180
KKR Malaysia
KKR Indonesia
Starbucks Malaysia
Starbucks Brunei
Jollibean Singapore
Jollibean Malaysia


1.4 Kenny Rogers Roasters (KRR)
While BFood is a franchisee of KRR Malaysia, Indonesia and Cambodia, its
holding company, Berjaya Group, holds the global KRR franchise following its
acquisition of KRR International Corp, US in Apr 2008. As at end-Apr 2014,
there were 102 KRR outlets under the group, of which 78 were located in
Malaysia with the remaining 24 outlets in Indonesia.

KRR restaurants feature rotisserie-roasted chicken as their main core product,
which is complemented by a variety of hot and cold side dishes and KRR's
famous muffins, vegetable salads, pasta, soups, desserts and beverages. It
started off as a self-service fast-food chain, but it then was converted to a
full-service, mid-casual dining setting with free Wi-Fi to provide customers a
more comfortable environment. Under KRR, the group also offers catering and
delivery services. It opened its first KRR drive-thru restaurant in Asia at Setia
Tropika, Johor Bahru more than a year ago.

Figure 4: Kenny Rogers restaurant Figure 5: Kenny Rogers meal

SOURCE: CIMB RESEARCH SOURCE: CIMB RESEARCH


October 3, 2014

8

1.5 Starbucks Coffee chain
Starbucks opened its first store on 17 Dec 1998 in Kuala Lumpur and has since
expanded to Sabah and Sarawak as well as Brunei. It introduced first drive-thru
concept store in Dec 2009 in Johor Bahru and it has 15 drive-thru concept
stores in Selangor, Johor, Penang, Perak and Pahang. As at end-Apr 2014,
BFood has 170 Starbucks stores in Malaysia and one in Brunei. It opened its
first Starbucks outlet in Brunei on 16 Feb 2014. We understand that the outlet
is doing extremely well. The outlet is slightly different from the usual Starbucks
outlet in Malaysia as it features a traditional coffee bar which is also known as
"slow bar" which allows customers to savour their coffee using the "pour
over" brewing method.

Figure 6: Starbucks Brunei features the slow bar Figure 7: The official opening of Starbucks Brunei


1.6 Jollibean
Jollibean Foods was incorporated in Nov 1993. Currently, there are a total of 32
"Jollibean" and 12 "Sushi Deli" outlets, all of which are based on the Quick
Service Concept, as well as two "Kopi Alley" outlets in Singapore. BFood has
recently brought Jollibean to Malaysia and opened its first kiosk at Berjaya
Times Square in Dec 2013 and second kiosk at Sunway Pyramid in Feb 2014.

Jollibean's signature products are its fresh daily made "Jollibean" soymilk
drinks. It also sells traditional snacks such as the street pancake Mee Chiang
Kueh that complements its soymilk drinks. "Kopi Alley" is a traditional coffee
cafe concept which offers traditional food & beverages like coffee, tea, toasted
bread, nasi lemak and mee siam. "Sushi Deli" serves an array of Japanese food,
such as sashimi, etc.


October 3, 2014

9

Figure 8: Jollibean Singapore Figure 9: Jollibean Food

S SOURCE: CIMB RESEARCH SOURCE: CIMB RESEARCH

Figure 10: Kopi Alley Singapore Figure 11: Food and drinks served at Kopi Alley


Figure 12: Sushi Deli Singapore Figure 13: Sushi Deli Singapore



October 3, 2014

10

1.7 KRR accounts for bulk of the revenue
As at end-Apr 2014, the KRR business accounts for the bulk of BFood's revenue,
at 74% (KRR Malaysia, 65%; KRR Indonesia, 9%). This is followed by Jollibean
(25% of total revenue) and Starbucks Brunei (1%). Note that Starbucks
Malaysias financials have yet to be consolidated.

Figure 14: FY14 revenue breakdown
Title:
Source:
KKR Malaysia, 65%
KKR Indonesia,
9%
Starbucks Brunei,
1%
Jollibean, 25%
KKR Malaysia KKR Indonesia Starbucks Brunei Jolliebean


Starbucks Malaysias financials were not consolidated as the group only owns a
50% stake in FY14. BFood completed the acquisition of the remaining 50%
stake in Starbucks on 18 Sep 2014, which will see Starbucks becoming the main
revenue generator and growth driver going forward. Assuming that it owns
100% of BStarbucks in FY14 and Starbucks financials are consolidated, the
revenue from Starbucks will form ~67% of BFood's total sales.

Figure 15: FY14 revenue breakdown, assuming the Starbucks Malaysia business is
consolidated
Title:
Source:
KKR Mal aysi a
21.64%
KKR Indonesi a
3.00%
Starbucks Mal aysia
66.67%
Starbucks Brunei
0.33%
Jol l i bean
8.37%
KKR Malaysia KKR Indonesia Starbucks Malaysia Starbucks Brunei Jolliebean



October 3, 2014

11

2. OUTLOOK KENNY ROGERS ROASTERS
2.1 More growth opportunities in Malaysia
Berjaya Group holds the master franchise of KRR for Malaysia, which has
granted BFood a 25-year exclusive franchise rights in Malaysia in 2004. KRR
currently has 78 KRR restaurants in Malaysia, making it one of the largest
dining chains in Malaysia.

Figure 16: Main competitors of KRR
Main competitors Number of outlets
Kenny Rogers Roasters 78
The Chicken Rice Shop 65
KFC >500
Nando's 58
Delifrance 17
Tony Roma's 6
Pizza Hut 328
Domino's 39
Papa John's pizza 28

SOURCES: CIMB

While KRR has been in Malaysia for 20 years, it has more room to grow as its
outlets are currently concentrated in the urban areas. Of the total outlets, ~55%
of its stores are located in the Klang Valley. In FY15, it plans to open at least 12
KRR restaurants with more focus on the suburban areas. The capex for one new
outlet is about RM700k and the payback period is 1.5-3 years.
2.2 Shift of focus on smaller towns gives better margin
The sales generated by the outlets in the smaller towns (e.g. Segamat and Alor
Setar) are surprisingly good, while the rental rates are much lower, at 10-11% to
sales vs. 18-20% to sales in the urban areas. We believe that the strong sales are
due to the lack of dining choices in smaller towns. In view of the much stronger
sales and lower operating cost, the higher contribution from the smaller towns
going forward will help boost its margins.
2.3 Indonesia is not profitable yet but offers long-term growth
potential
Its venture into Indonesia started with the acquisition of a 51% equity interest
in PT Boga Lestari Sentosa via Berjaya Food (International) Sdn Bhd in Jan
2012. As at end-Apr 2014, the group has 24 KRR restaurants in Indonesia.
Although Indonesia is still making losses (-RM4.9m in FY14) due to the lack of
economies of scale and weaker consumer spending of late, the country does
offer substantial growth opportunities in the long term given its huge
population. Given the country's poorer performance, KRR plans to scale down
its expansion plan from 10 new outlets per annum to six outlets per annum for
now, as BFood thinks that it should focus on turning around its exiting outlets
first before expanding aggressively. We note that the difficulty in finding
strategic locations is another reason for KRR's poor performance in Indonesia.
Apart from finding the right location by itself, the group also plans to work with
AEON and grow in tandem with AEON shopping malls in Indonesia.


October 3, 2014

12

Figure 17: KRR Indonesia's operating loss (RM m)
Title:
Source:
(5.0)
(4.5)
(4.0)
(3.5)
(3.0)
(2.5)
(2.0)
(1.5)
(1.0)
(0.5)
0.0
FY12 FY13 FY14


2.4 Riding on the untapped market in Cambodia
Apart from Indonesia, the group has just ventured into a new market,
Cambodia (population size, ~15m) where it opened its first restaurant in Jun
2014. In Cambodia, BFood owns a 70% stake with the remaining being held by
a local business partner. BFoods first outlet is located in an AEON shopping
mall while this mall is situated near a casino in Phnom Penh, both properties
are not within walking distance. Hence, its sales performance is not up to
expectations and it is making small losses (few hundred thousand ringgits per
year).
Despite this, BFood remains optimistic on the countrys prospects. It will be
opening one more restaurant in a Parkson shopping mall which will be built
nearer to the casino. Although Cambodias population size of 15m is small
compared to Malaysia and Indonesia, Cambodias fast-food dining market is
relatively untapped. With an average GDP growth rate of 7% annually,
Cambodia is back on the radar of major corporations today. After a slow start,
many fast-food brands are looking to enter this market, which is currently
dominated by KFC with 11 outlets (after making its debut in 2008).
We believe that KRR made the right choice to enter this market early and clinch
a piece of the large F&B pie, well ahead of the other franchise giants. Those that
have just ventured into this country include D Tandoor from Malaysia, KRR,
Tea Secret and Oshinoya, while Dominos Pizza and Lotteria are looking for
suitable partners to expand their businesses to Cambodia. McDonalds and
Pizza Hut have yet to enter this market.
To improve its business prospects in the country, KRR plans to introduce more
new dishes such as beef and fish as well as employ more local workers (to
ensure better communication with Cambodians) instead of sending
Indonesian workers to this country.

Figure 18: Number of Kenny Rogers Roasters restaurants
Number of stores as at Apr
2014
Target number of new
stores in FY15
Average sales per month for
new stores
KRR Malaysia 78 12 RM90k-110k
KRR Indonesia 24 6 RM70k
KRR Cambodia 0 2 RM50k



October 3, 2014

13

2.5 New products to drive SSSG
The restaurant sales of the group are mainly generated during lunch and dinner
hours. To fully utilise its resources and pull in the crowd during low-traffic
hours, BFood has introduced breakfast and teatime menus which have helped
to improve sales, albeit slightly. Going forward, BFood will continue to
introduce new menu items, including non-chicken products such as lamb,
fish, seafood and beef.
Previously, the group had been working with its suppliers in dishing out new
menu items. In 2011, it set up its own product development team to develop
new products. Prior to the beginning of each financial year, BFood will draw up
a tentative schedule/promotion plan on the types of new products to be
introduced during the financial year note that these products will normally
cater to the school holidays and festive seasons.

Figure 19: KRRs breakfast and teatime menus Figure 20: Example of KRR taking the opportunity to carry out
promotions on special days


2.6 Maximising revenue-generating opportunities by offering
delivery/catering and drive-thru services
Other than introducing new products, breakfast and teatime meals, it also
offers delivery/catering services this suggests that BFood is maximising its
revenue-generating opportunities. The group has introduced its
delivery/catering services in 2008, which have been carried out by itself as well
as third-party service providers, namely Asian Room Service (a delivery service
provider). We believe that there is ample room to grow for these services as the
awareness among consumers is low. In view of this, BFood intends to embark
on a series of marketing campaigns. Apart from providing delivery/catering
services, KRR also operates one drive-thru restaurant in Setia Tropika, Johor
Bahru that opened in Jun 2013.

October 3, 2014

14

Figure 21: Kenny Rogers Roasters drive-thru restaurant

SOURCE: CIMB RESEARCH

2.7 Constant refurbishments improve sales substantially
BFood continuously refurbishes its restaurants to create a contemporary
ambience for its customers. In FY15, five restaurants will be due for renovation.
Management is of the view that pursuing a new look for its restaurants is vital
to at least maintain the outlets' traffic flow. Note that sales increased by an
average of 25-30% post-refurbishment.

2.8 Shift towards healthier eating lifestyle benefits KRR
BFood emphasises on preparing wholesome, hearty and well-balanced meals.
Generally, the groups menu consists of offerings that are all steamed, baked or
roasted. Given that more consumers are adopting a healthier eating lifestyle, we
believe that KRR will be one of the biggest beneficiaries of this trend.

2.9 Beefing up the business in Malaysia and Indonesia to
face the headwinds of slower consumer spending
KRR's business in Malaysia and Indonesia has not been performing well in the
past two financial years due to the weaker consumer spending. While revenue
has continued to grow due to the addition of new stores, same-store-sales
growth (SSSG) has dropped yoy. We understand that it is not only KRR that has
experienced slower sales, as the other F&B franchise businesses under the
parent company have also registered poorer sales.

Figure 22: KRR Malaysia and Indonesia sss growth
Country FY11 FY12 FY13 FY14
Malaysia 8.0% 6.0% -3.0% -5.0%
Indonesia -11.0% -4.0%


To beef up the business of KRR in Malaysia and Indonesia during periods of
weak consumer spending, the company plans to introduce meal packages and
promotions at lower prices to make them more affordable. For example, it
reduced the choices of side dishes and only retained the popular ones to reduce
costs, introduced a smaller portion lunch set menu to improve sales, while
maintaining margins. In August, it also introduced grilled steak in Malaysia and
spicy chicken in Indonesia. BFood plans to bring the spicy chicken dish over to
Malaysia in October. Other than this, it also increased the price on the normal
set menus in May 2014. It will also launch the KRR reload card to encourage
consumer spending in Dec 2014. We understand that KRR in Malaysia has
improved in August to September, while Indonesia remains weak.

October 3, 2014

15

3. OUTLOOK STARBUCKS COFFEE (STRONGEST
GROWTH AMONG STARBUCKS CHAINS GLOBALLY)
3.1 Largest coffee chain in Malaysia
Starbucks Coffee is the largest coffee chain in Malaysia with a 43% market
share in terms of number of outlets. This is followed by McCafe, Coffee Bean,
Gloria Jeans, Dome, Espresso Lab, Pacific Coffee, Dr Caf, Artisan Coffee and
San Francisco.

Figure 23: Dominant coffee chain market share (%)
Title:
Source:
Starbucks cof f ee, 40%
Cof f ee bean, 14%
Gloria
Jeans,
8%
San
Francisc
o, 8%
Dome, 5%
McCaf e, 17%
Espresso Lab, 3%
Pacif ic Cof f ee, 2%
Dr Caf , 2%
Artisan Cof f ee, 1%
Starbucks coffee Coffee bean Gloria Jeans San Francisco Dome
McCafe Espresso Lab Pacific Coffee Dr Caf Artisan Coffee


Despite being the largest, there is still a lot of room to grow in Malaysia. As
compared to the more developed countries, competition is lower as there are
fewer prominent caf chains in Malaysia. Using the neighbouring country
Singapore as a comparison, despite the higher competition and larger number
of Starbucks outlets/capita in Singapore, we understand that Singapore
Starbucks is doing so well that Starbucks Inc is willing to hold on to it in spite of
the small population size.

Figure 24: Number of Starbucks/capita in Singapore and Malaysia
Starbucks Singapore Starbucks Malaysia
Central Business District 13 Central 107
East 18 North 27
Ochard 15 South 18
Marina 13 East Coast 7
North 13 East Malaysia 15
South 13 Total number of outlets 174
West 19 Number of outlets/capita 5.9
Total number of outlets 104
Number of outlets per capita 19.3


Malaysia also has very low coffee consumption/capita versus the developed
countries, which will ensure long-term growth prospects (figure 25). More
importantly, based on the research done by Cardiff Metropolitan University in
2013 on 278 respondents in Malaysia, Starbucks is the preferred coffee caf in
the country (figure 26). Given the relatively lower competition in Malaysia and
the strong popularity among Malaysians, Starbucks achieved five consecutive
years of double digit SSS growth in FY10-14, making it the best performing
Starbucks chain globally.

October 3, 2014

16

Figure 25: Per capita coffee consumption (kg)
Title:
Source:
0.4
0.8 0.8
3.7
4.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Thailand Malaysi a Indonesia Europe US

SOURCES: CIMB, ICO

Figure 26: Starbucks is the preferred coffee caf
Title:
Source:
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Starbucks Coffee bean Papparich OldTown Glorian Jeans Others
Most frequent More frequent Average Less frequent Least frequent

SOURCES: CIMB, CARDIFF METROPOLITAN 2013

Figure 27: Starbucks Malaysia's SSSG (%)
Title:
Source:
15.5%
23.7%
13.2%
11.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
FY11 FY12 FY13 FY14



October 3, 2014

17

3.2 A cash cow business with zero debt
In the past three years, the Starbucks business top and bottom lines has grown
by 27.6% and 48.8% respectively. Aside from the strong earnings growth,
Starbucks has been operating without borrowings, thanks to its ability to
generate solid cash flow and a negative cash conversion cycle.

Figure 28: Starbucks financial information
FY11 FY12 FY13 FY14
Revenue (RM m) 144.7 183.3 234.2 301.1
Net profit (RM m) 10.6 17.1 23.6 35.0
Net cash (RM m) 34.7 37.2 57.0
Net operating cash flow (RM m) 39.2 31.3 59.7
Cash conversion cycle (days) (72.2) (44.1) (46.7)


3.3 Making Starbucks Malaysia a wholly-owned subsidiary
Given the bright prospects and the strong fundamentals, BFood proposed to
acquire the remaining 50% of the Starbucks business in July 2014. The
acquisition was completed on 18 September 2014. By making Starbucks
Malaysia as a wholly owned subsidiary, BFoods franchise rights will be
extended from 2024 to 2039 and it be able to reap the full benefits of the strong
growth in the coffee business. In FY14, Starbucks coffee contributed RM17.5m
associate profits to BFoods earnings. With the completion of the acquisition in
September 2014, 100% of the earnings from Starbucks will be consolidated into
BFood for the last seven months of FY15.
We understand that the disposal of the 50% stake in Starbucks Malaysia by
Starbucks Coffee Inc was part of the latters operational streamlining exercise to
concentrate its resources in larger countries like China. Furthermore, the cash
received from the disposal could be used to pay down the damages of US$2.7bn
to Kraft Foods as Starbucks prematurely scrapped a contract with Kraft that
permitted Kraft to sell bagged Starbucks coffee in grocery stores. Aside from
Malaysia, we also understand that Starbucks Inc also sold its business in
Australia to the Withers and Barlow families who own the 7-Eleven business in
Australia. It also gave out its Hong Kong, Macau, Vietnam and Cambodia
operations to the Maxim Group in exchange for the Starbucks China business.
3.4 Ramping up expansion plan
As at end-Apr 2014, BFood had 170 Starbucks cafs in Malaysia. While the
group only opened 27 outlets in FY11-13, it ramped up its expansion plan in
FY14 by opening 28 outlets. Going forward, it will continue to be aggressive and
targets to open at least 25 outlets/annum over the next five years to comply
with the conditions imposed by Starbucks Inc. We are not concerned about
Starbuckss ability to find strategic locations as it has always been the preferred
tenant for shopping malls given its popularity among Malaysians. Capex per
store is about RM800k and it takes 2-3 years to recoup its investment.

Figure 29: Number of new outlets
Country FY11 FY12 FY13 FY14 FY15
Malaysia 5 15 7 28 25
Brunei 1 2



October 3, 2014

18

3.5 In the priority list of Petronas and Shell
As at end-April 2014, of the 170 Starbucks cafs, 14 were cafes with drive-thru
service located in Selangor, Johor, Penang, Perak and Pahang. These outlets are
performing extremely well and are usually located at petrol stations. Due to its
ability to attract traffic, we understand that both Petronas and Shell have given
Starbucks the choice to pick its own top 20 to 30 locations to open a Starbucks
caf. We note that revenue generated by the Starbucks at petrol stations is
double that of the normal Starbucks cafes, while rental rates are only 8-9% of
total sales versus the average of 14-15%. This has partially helped to improve its
EBITDA margin from ~18% in FY13 to 21% in FY14 as the group opened 5-6
Starbucks drive-thru outlets just last year.
3.6 Tapping new market - Brunei
BFoods business in Brunei started on 16 February 2014 when it opened its first
outlet in the country. The business in Brunei is a JV with Deluxe Daily Food
Sdn Bhd which is owned by the royal family of Brunei. It had just opened the
second outlet in the country and we understand that both outlets are
performing extremely well. It plans to open 10 outlets over the next five years.
3.7 Starbucks card an effective method to boosts sales
BFood launched Starbucks card in 2011. Three months after the launch,
300,000 cards were sold and currently 3.5m cards have been distributed.
Starbucks card is a stored value card that offers consumers greater convenience
when making purchases at Starbucks stores. With the ease of one quick swipe,
consumers can purchase anything in the store. Reloading can also be done
online. Given the convenience and the fact it is cashless, it will prompt impulse
buying and hence help to boost sales. 42% of its sales are generated from the
cardholders. BStarbucks recognises the reloaded unused cash as deferred
revenue. There was RM24m deferred revenue in FY14 which helped to generate
extra interest income. If the cash remains unused for 3 years, it will be forfeited.

Figure 30: Starbucks card Christmas series



October 3, 2014

19

3.8 Secures LOI to distribute Starbucks FMCG products
The company intends to bring in Starbuckss FMCG business into Malaysia.
While the products are already available in Malaysia, their availability is limited
to only few places in Malaysia, mostly in Cold Storage supermarkets in Kuala
Lumpur. We understand that BFood has secured the Letter of Intent (LOI)
from Starbucks Inc to distribute Starbuckss FMCG products in Malaysia.
BFood shares a common shareholder with 7-Eleven Malaysia which has 1,500
outlets nationwide which will provide BFood a ready distribution channel to
distribute its products. Aside from 7-Eleven, BFood is also planning to
outsource its distribution to third parties such as DKSH and Hi5 Logistics
which have huge distribution channels. We also note that Starbuckss FMCG
products in Malaysia currently are not sourced directly from Starbucks but
third parties. Hence, the products sold will be more expensive and have a
shorter shelf life than those that will be brought in by BFood that will be
sourcing its products directly from Starbucks overseas at the initial stage.
We conservatively estimate that the FMCG business could potentially generate
revenue and net profit of ~RM60m and ~RM5m per annum (assuming a
conservative 30k units of FMCG sold per day, average selling price of RM5 and
8% net profit margin) respectively. We believe 30k units is conservative as the
group sold about 60k cups of coffees per day in its Starbucks outlets (based on
85% of Starbucks sales and average selling price of RM12) in FY14. The FMCG
business also comes with a wide range of products as compared to its Starbucks
outlets. As the plan is still in the preliminary stage, any meaningful earnings
contribution will only likely materialise in FY17.

Figure 31: Starbuckss FMCG products Figure 32: Starbuckss FMCG products Figure 33: Starbuckss FMCG products

SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY SOURCE: CIMB RESEARCH, COMPANY


October 3, 2014

20

4. OUTLOOK JOLLIBEAN FOODS
4.1 Originated from Singapore
BFood acquired Jollibean Food from two individuals on 7 December 2012.
When it acquired the company, Jollibean had 55 outlets in total in Singapore.
This included 35 Jollibean outlets, 4 Kopi Alley, 14 Sushi Deli and 2 Dango.
Currently, BFood has only 47 outlets as it undertook a cost rationalisation
exercise after the acquisition. Although it opened 4-5 stores per year in the past,
it also closed down some outlets because they were unprofitable or faced
unjustifiably large increases in rental rates. Since then, Jollibean Foods
earnings improved from S$0.6m in FY13 to S$0.8m in FY14. It reported a 2%
contraction in SSS growth in FY14 due to the shortage of labour as Singapore
government imposed a foreign labour quota last year. Aside from this, labour
and rental costs in the Singapore have also been rising.

Figure 34: Jollibean Singapore
FY11 FY12 FY13 FY14
Same-store-sales growth (%) 11% 22% 17% 16%
Number of outlets 61 50 47 47


4.2 Expanding in Singapore and replicating business model
overseas
While Singapore is a small country, BFood has been opening about 4-5 outlets
per year. There are still many strategic locations at the MRT stations as
Singapore expands its MRT routes. While earnings growth could be slow due to
the steady and stable demand, most of the outlets are profitable due to the low
start-up cost (capex RM50k/outlet) with payback period of 1-2 years as the
outlets are generally smallish. Hence, the management thinks that it is easy to
replicate the model overseas.
4.3 Expansion to Malaysia
Jollibean opened its first kiosk at Berjaya Times Square in December 2013 and
its second kiosk at Sunway Pyramid in February 2013. Going forward, Jollibean
aims to penetrate deeper into the local snack and beverage markets by opening
five additional new kiosks in 2014-2015. Once the business is established, the
plan is to franchise the business. Future plans are to expand the business to
other Asia Pacific countries such as China, Indonesia and the Philippines.
4.4 Steady business to tap a different market
The Jollibean business targets consumers who grab and go, a different
customer segment as compared to KRR and Starbucks. While we do not see the
Jollibean business driving the earnings growth of the company given the stable
and steady demand on its products and stronger competition, the business
generates a healthy cash flow. We expect sales of Jollibean to grow in tandem
with the population growth and the addition of new outlets. Increasing its
prices will be tougher given the wide availability of substitutes. This business
could help to buffer the slowdown in sales in its other businesses when
consumer spending is weak given that the products sold by Jollibean is
inexpensive and hence the demand will be more resilient.


October 3, 2014

21

4.5 Increasing production efficiency to improve profitability

To increase the profitability of Jollibean, BFood will continue to raise
productivity and efficiency through the automation process. It also plans to
strengthen its internal processes to improve staff efficiency and increase
manpower utilisation. For example, Jollibean recently started a partial
self-service outlet to ease the labour shortage in Singapore.

5. OUTLOOK
5.1 A giant franchisee in the making
Since its listing, BFood has been injecting new businesses into the group via
internal or third-party acquisitions. Berjaya Corp, BFoods parent company
owns the franchise of Wendys, KRR China, Krispy Kreme, Papa Johns pizza
and we understand that the management has the intention to inject these
businesses into BFood once they become profitable. First in the pipeline could
be Papa Johns pizza in two years time.
5.2 SWOT analysis
Our SWOT analysis highlights that BFood has strong franchise brand names,
with Starbucks as the main earnings growth driver given its dominance and the
low penetration rate in Malaysia. While KRR and Jollibean are in more
competitive segments, KRR has presence in Indonesia and Cambodia which
offer a large growth potential, while Jollibeans business model can be easily
replicated for expansion.

Figure 35: SWOT analysis
Strengths Opportunities
- Owned strong franchise brands - More business for KRR as consumers become more health concious
- Exposure to the fast growing markets - Low coffee penetration rate leaves large room for Starbucks to grow
- Well managed company - Stands good chance to secure Starbucks FMCG business

Weakness Threats
- Affected by raw material price and forex volatility - New entrants
- KRR and Jollibean in highly competitive segments - Change of consumer consumption behavior
- Strong earnings growth depends heavily on Starbucks - Weaker consumer spending

SOURCES: CIMB,


October 3, 2014

22

6. RISKS
6.1 Slower consumer spending in Malaysia
Given the higher living cost due to the cut in subsidies and the implementation
of GST in 2015, we expect consumer spending to grow by a slower rate at
5.5-6.5% versus 7.2% in 2013. The slower consumer spending is likely to impact
its KRR business more than its Starbucks and Jollibean businesses. We believe
that Starbuckss customers have higher spending power as Starbuckss products
target the niche and premium markets, while Jollibean is selling more basic
food for which the pricing is lower. Furthermore, most of Jollibeans sales is
still generated from Singapore where consumer spending is expected to be
more resilient. GST is also expected to benefit BFood given that the 6%
consumption tax will replace the 5-10% sales tax that the group pays on its
purchases. We have factored in conservative SSS growths of 2% and 10-12%
(versus 11-24% SSS growth in the past) for its KRR Malaysia and Starbucks
businesses, respectively, in the next three years.
6.2 No ownership of the KRR brand
BFood does not own the KRR franchise and brand, but has been granted the
right by Berjaya Group to use the KRR brandname. Hence BFoods operations
in Malaysia are highly dependent on the terms set in the agreement with
Berjaya Group. BFood currently has exclusive franchise for 25 years from 1
January 2004 and it is renewable for another 25 years.
6.3 Raw material price fluctuations will affect margins
BFoods profit is highly dependent on the consistent supply of food raw
materials. Fluctuations in the supply of food raw materials will affect its margin.
We understand that 35-40% of BFoods total COGS is made up of raw materials.
Main raw materials are broilers for KRR, coffee bean and milk for Starbucks
and soyabean for Jollibean. The remaining expenses are direct staff cost,
utilities and A&P expenses.
Although the price of coffee bean spiked up in August 2013 by ~50%, it had
minimal impact on Starbuckss raw material cost given that the company
sources directly from Starbucks Inc which in turn sources its coffee beans
directly from the contract farmers. Hence, BStarbucks coffee bean prices have
been relatively stable historically. Also, despite coffee bean prices dropping
~33% in FY13 yoy, Starbuckss EBITDA margin hovered at about 18% in FY12
and FY13. Based on our sensitivity analysis, a 5% increase in overall raw
material cost (which is unlikely given that some of its costs consist of coffee
bean cost for which prices are relatively stable) will impact our earnings
forecasts by ~8%.

Figure 36: Bfood's main raw materials' prices
Title:
Source:
0
100
200
300
400
500
600
700
3-Jan-00 3-Jan-02 3-Jan-04 3-Jan-06 3-Jan-08 3-Jan-10 3-Jan-12 3-Jan-14
Milk Coffee Cocoa Soybean Sugar

SOURCES: CIMB, BLOOMBERG


October 3, 2014

23

6.4 Forex fluctuations
BFoods revenue is transacted in a few foreign currencies due to its presence in
a number of countries. All of its overseas operations revenue are transacted in
their local currencies, except Cambodia for which sales are transacted in USD.
As for the cost, the main forex exposure is expenses paid to purchase raw
materials from Starbucks Inc which is transacted in USD and account for ~50%
of Starbuckss COGS. Given that its exposure to Indonesia, Brunei and
Cambodia currently is small, its biggest forex exposure is its USD expenses.
Based on our sensitivity analysis, a 1% depreciation of RM against USD will
impact our FY15-17 earnings forecasts by 1%, assuming all else remaining
constant. The group does not hedge foreign currencies.

Figure 37: MYR/USD exchange rate Figure 38: MYR/SGD exchange rate
Title:
Source:
2.6
2.7
2.8
2.9
3
3.1
3.2
3.3
3.4
3.5

Title:
Source:
2.1
2.2
2.3
2.4
2.5
2.6
2.7

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG

Figure 39: MYR/BND exchange rate Figure 40: IDR/MYR exchange rate
Title:
Source:
2.1
2.2
2.3
2.4
2.5
2.6
2.7

Title:
Source:
2,400.00
2,600.00
2,800.00
3,000.00
3,200.00
3,400.00
3,600.00
3,800.00
4,000.00

SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG

6.5 Rising electricity tariff
Electricity costs account for 3-5% of its total operating cost. To reduce its
budget deficit, Malaysias government will continue to cut subsidies, in our
opinion. Based on our sensitivity analysis and assuming all else staying
constant, a 5% increase of electricity tariff will impact our net profit forecast by
2%.

October 3, 2014

24

7. FINANCIALS
7.1 128% topline 3-year CAGR since listing in FY11
BFood has been posting consistent revenue and earnings growth since its listing
in 2011. This is mainly driven by: (i) the KRR business due to stronger SSS
growth and addition of new outlets in both Malaysia and Indonesia, and (ii)
acquisition of Jollibean in Dec 2012, to a lesser extent (Jollibean only made up
12% and 25% of the total revenue in FY13 and FY14 respectively).
The stronger SSS growth was achieved despite the group not increasing prices
consistently. The company has not increased the selling prices of Starbucks
coffee from FY11 to FY14, while it only increased prices at KRR and Jollibean
when it was necessary. We understand that KRR did not revise its pricing
despite the implementation of the minimum wage in Jan 2013 and electricity
tariff hike in Jan 2014.

Figure 41: Revenue (RM m)
Title:
Source:
71.9
88.6
121.9
150.4
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
FY11 FY12 FY13 FY14


Figure 42: Revenue breakdown (RM m)
Business FY11 FY12 FY13 FY14
KRR Malaysia 71.9 86.0 95.7 97.7
KRR Indonesia 2.6 10.9 13.5
Starbucks Brunei 1.5
Jollibean Singapore 15.3 37.6
Total 71.9 88.6 121.9 150.4


Figure 43: KRR Malaysia and Indonesia sss growth
Country FY11 FY12 FY13 FY14
Malaysia 8.0% 6.0% -3.0% -5.0%
Indonesia -11.0% -4.0%



October 3, 2014

25

7.2 EBITDA margin slides downwards
While performing strongly at the topline, BFoods EBITDA margin has been on
a downward trend in the past four years. This was impacted by the weak KRR
performance in Malaysia and Indonesia. In the past two years, KRR in both
Malaysia and Indonesia reported negative SSS growth due to weak consumer
spending. While Malaysia continued to be profitable, its Indonesia business
failed to register a profit although it was almost breakeven in FY12 (acquired in
January 2012). In the past two years, Malaysias consumer spending was
dragged down by the higher living cost due to the cut in subsidies on various
items by the government, while Indonesias spending power was impacted by
the governments move to cut fuel subsidies for the first time since 2008, which
raised gas and diesel prices by 44% and 22% respectively. Malaysia was also
impacted by the higher operating cost due to the full impact of the
implementation of minimum wage in Jan 2013 and electricity tariff hike in 1
Jan 2014.
The EBITDA margin was also pulled down by the acquisition of Jollibean which
commands a lower margin compared to its other businesses. Jollibean reported
negative SSS growth in FY14 due to the shortage of labour, as well as higher
labour and rental costs in Singapore, which further impacted its margins.

Figure 44: EBITDA margin (%)
Title:
Source:
24.0%
21.6%
15.7%
9.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
FY11 FY12 FY13 FY14


Figure 45: Operating profit breakdown and margin
Operating profit
breakdown (RM m) FY11 FY12 FY13 FY14
KRR Malaysia 12.6 15.6 14.8 10.7
KRR Indonesia (0.3) (2.8) (4.6)
Starbucks Brunei 0.3
Jollibean 1.5 2.1
Operating margin (%)
KKR Malaysia 17.5% 18.2% 15.5% 11.0%
KKR Indonesia
Starbucks Brunei 19.2%
Jollibean 9.7% 5.5%



October 3, 2014

26

Figure 46: Prices raised in Malaysia over the past one year
Date Items raised
Sep-13 Raised petrol RON 95 price by 20 sen to RM2.10/litre
Oct-13 Raised sugar price from RM2.50 to RM2.84/kg
Jan-14 Raised electricity tariff by an average of 14.98%
Mar-14 Raised petrol RON 97 price by 5 sen to RM2.90/litre
May-14 Raised natural gas price by an average of 20%
Oct-14 Raised petrol RON 95 price by 20 sen to RM2.30/litre

SOURCES: CIMB

7.3 But earnings continue to grow
Despite the poorer EBITDA margin over the past four years, BFood has
delivered a 30.5% 3-year CAGR since FY11. The Starbucks business joined the
group at an opportune time when BFood acquired it in July 2012. When the
KRR business in Malaysia and Indonesia was impacted by slower consumer
spending, Starbuckss 9-month (RM9m associate profit) and full year earnings
(RM17.5m associate profit) contributions in FY13 and FY14, respectively,
helped to cushion the impact. The acquisition of Jollibean in Dec 2012 also
helped somewhat, albeit minimally.

Figure 47: Net profit (RM m)
Title:
Source:
10.2
11.1
18.6
22.7
0.0
5.0
10.0
15.0
20.0
25.0
FY11 FY12 FY13 FY14


7.4 Forecasting 49% 3-year earnings CAGR
We forecast that BFood will deliver a 49% 3-year earnings CAGR against a 75%
3-year revenue CAGR. This will be mainly driven by: (i) the opening of new
KRR stores in Malaysia and Indonesia, (ii) new contribution from KRR
Cambodia (incorporated in July 2014), (iii) stronger SSS growth and new stores
from Starbucks Malaysia and Brunei (full year contribution in FY15), and (iv)
stronger SSS growth and new openings from Jollibean Singapore and Malaysia
(full year contribution in FY15). We have also factored in a very minimal
earnings contribution from its FMCG business. Assuming BFood sells 30k units
of products per day on average at selling prices of RM5/unit, we conservatively
estimate that its FMCG business will contribute a RM1m net profit in FY16
(assumed 3 months contribution), and RM5m in FY17. The reason we believe
30k units/day is conservative is because the group sold about 60k cups of coffee
per day (based on 85% of Starbucks sales and average selling price of RM12) in
FY14. The FMCG business also comes with a wider range of products as
compared to its Starbucks outlets.


October 3, 2014

27

Since June 2014, while there has been no price increase across the board,
BFood implemented a 3-tier pricing for its Starbucks business to cope with the
spiralling rental rates at certain locations. Due to the high rental rates at
Genting, the Starbucks coffee there is priced at the highest selling price. This is
followed by the Starbucks coffee outlets at the airports and tier-1 shopping
malls (e.g. Mid Valley, The Gardens, KLCC and Times Square), and the
Starbucks coffee outlets at other locations. The price difference between
different tiers is only ~RM1. The group also raised the selling prices of its KRR
normal set menu by 5% and Jollibeans food by 5-10% since May.

Figure 48: Number of outlets
Business FY11 FY12 FY13 FY14 FY15f FY16f FY17f
KKR Malaysia 53 64 69 78 90 100 110
KKR Indonesia 9 16 24 29 34 39
KKR Cambodia 2 3 4
Starbucks Malaysia 120 135 142 170 195 220 245
Starbucks Brunei 1 3 5 7
Jollibean Singapore 61 50 47 47 52 54 56
Jollibean Malaysia 2 7 9 11
Total 234 258 274 322 378 425 472


Figure 49: FMCG business assumptions
FY16f FY17f
ASP per unit of product 5.0 5.0
Number of unit sold/day 30k 31.5k


Figure 50: Assumptions of same-store-sales growth (%)
KKR Malaysia 8% 6% -3% -5% 2% 2% 2%
KKR Indonesia -11% -4% -4% -4% -2%
KKR Cambodia 5% 5% 5%
Starbucks Malaysia 16% 24% 13% 11% 10% 10% 12%
Starbucks Brunei 15% 15% 15%
Jollibean Singapore -3% 9% 7% -2% 0% 1% 1%
Jollibean Malaysia 10% 10% 10%


Figure 51: Revenue forecast
KKR Malaysia 71.9 86.0 95.7 97.7 109.8 120.4 131.2
KKR Indonesia 2.6 10.9 13.5 14.8 16.0 17.5
KKR Cambodia 1.2 1.9 2.6
Starbucks Malaysia 144.7 183.3 234.2 301.1 214.2 434.0 516.1
Starbucks Brunei 1.5 16.4 23.6 32.0
Jollibean Singapore 15.3 37.6 42.1 44.4 46.7
Jollibean Malaysia 0.2 1.4 2.0 2.7
FMCG 13.7 57.5



October 3, 2014

28

Figure 52: Revenue forecast (RM m) Figure 53: Net profit forecast (RM m)
Title:
Source:
71.9
88.6
121.9
150.4
399.9
656.0
806.1
0
100
200
300
400
500
600
700
800
900
FY11 FY12 FY13 FY14 FY15F FY16F FY17F

Title:
Source:
10.2
11.1
18.6
22.7
35.4
57.5
74.3
0
10
20
30
40
50
60
70
80
FY11 FY12 FY13 FY14 FY15F FY16F FY17F

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

7.5 Strong balance sheet
As at end-April 2014, BFood was in net cash position (RM 13.7m). In 2011,
when BFood proposed to acquire 50% of the Starbucks business, it also
proposed a rights issue to fund the acquisition. The rights issue entailed the
issuance of 118.9m rights shares together with 118.9m warrants together with
four warrants for every five shares. These 5-year 2012/2017 warrants are
exercisable at RM0.70 and expire on 13 Aug 2017.

We expect a high net gearing level of ~60% in FY15, before it gradually
improves as the acquisition of the remaining 50% stake in Starbucks will be
fully funded by borrowings. The high net gearing level is not a major concern
given that its interest coverage is about 4x.

7.6 Pays out about 50% of net profit as dividend
The company has a formal dividend policy of up to 40% but it has been
declaring a c.50% dividend payout since listing. Going forward, we have
factored in a 50% dividend payout ratio, translating to dividend yields of 2-3%.
We view BFood as a growth stock instead of a dividend stock.


October 3, 2014

29

8. VALUATION AND RECOMMENDATION
8.1 A company with strong franchise names
With its strong franchise brand names KRR, Starbucks and Jollibean we
believe that BFood is on a rising growth trajectory. The group is poised to reap
the benefits of the strong earnings growth delivered by Starbucks following the
completion of its acquisition of the remaining 50% stake on 18 September 2014.
We are confident that Starbucks would generate good earnings growth given its
status as the largest coffee chain in Malaysia, which makes it the preferred
coffee brand name in Malaysia where the coffee consumption penetration rate
is still low. Furthermore, it has expanded into Brunei and secured LOI for the
Starbucks FMCG business for which it has huge prospects in Malaysia.
Although KRR in Malaysia and Indonesia have been experiencing negative SSS
growth in the past two years, revenue has been growing due to the addition of
new stores. We expect SSS growth to turn around as consumer spending
recovers and KRR achieves greater economies of scale. KRRs prospects in
Indonesia are bright given the countrys huge population. In addition to this,
KRR is in a good position to garner a large market share in Cambodia as it is
one of the first few F&B chains that have entered this largely untapped market.
In the long term, given the healthy concept of KRR, we believe it will be one of
the bigger beneficiaries as health awareness increases and more consumers
become more health conscious. Unfortunately, the demand for healthy food is
not high enough for now.
While we do not expect Jollibean to register strong growth given the stable
demand for its products, it is generating healthy cash flow. Given that its
products are inexpensive, we expect its business to be more resilient and it
could help to partially buffer the potential slowdown of business from KRR as
consumer spending weakens. We expect Starbucks to be more resilient than
KRR given that it targets a more premium market.
Aside from these brand names, there will be more M&A opportunities in the
future. BFood is looking to inject more franchise businesses which are currently
parked under Berjaya Group into BFood as the businesses turn profitable. This
will further boost its earnings growth.
8.2 Strong earnings growth ahead
As consumer spending recovers and the group expands its network of strong
brand names, coupled with its new FMCG business, we expect BFood to be able
to sustain its strong growth in the next few years. We expect BFood to register a
3-year earnings CAGR of 49%, on the back of a revenue CAGR of 75% in
FY14-17. We expect this to be mainly driven by the strong growth from
Starbucks, while earnings from KRR Malaysia and KRR Indonesia as well as
new markets should gradually kick in as consumer spending recovers and when
it achieves higher economies of scale. Note that we have not factored in the full
potential from the FMCG business which could eventually boost its earnings
even more.
8.3 Valuing BFood at RM4.33
We value BFood at RM4.33 (on a fully diluted basis) which translates to 23.7x
CY16 P/E, a 30% premium over the peer average, which is justifiable given its
much stronger 3-year earnings CAGR of 49% versus its peers average of 13%.
We initiate coverage on BFood with an Add recommendation. Despite the
strong brand names and earnings growth ahead, the stock is under-covered.
Investors with a higher risk appetite should consider its warrants which are
exercisable at RM0.70 and will expire on 13 August 2017.


October 3, 2014

30

Figure 54: Sector comparison
Company Bloomberg Price Mkt Cap
name Ticker (US$) (US$) CY14 CY15 CY16 CY14 CY15 CY16 CY14 CY15 CY16 CY14 CY15 CY16
MITRA ADIPERKASA TBK PT MAPI IJ 0.44 734.4 29.8 20.3 15.5 3.3 2.9 2.5 0.5 0.7 0.9 9.6 15.3 17.4 14.5
MINOR INTERNATIONAL PCL MINT TB 1.13 4,502.0 32.5 26.5 22.3 4.9 4.4 3.9 1.1 1.3 1.5 13.4 17.5 18.5 14.7
OISHI GROUP PCL OISHI TB 2.74 514.4 29.9 21.7 23.0 4.6 4.2 5.2 1.8 2.6 8.9 16.3 20.2 20.1 14.6
OLDTOWN BHD OTB MK 0.53 236.2 14.4 12.9 11.9 2.1 1.9 1.8 3.7 4.2 4.9 14.4 15.3 15.5 8.7
BERJAYA FOOD BHD BFD MK 0.92 287.3 33.1 22.4 16.3 1.5 1.1 1.0 2.2 3.1 3.8 11.3 13.3 16.8 48.5
Sector average 27.9 20.8 17.8 3.3 2.9 2.9 1.9 2.4 4.0 13.0 16.3 17.7 20.2
P/E P/BV Yield (%) ROE (%) 3-year EPS
CAGR (%)



October 3, 2014

31

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The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may
be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.
Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result
Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing
authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by,
deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report
is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than
the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to
lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory
of the United Arab Emirates.
United Kingdom and Europe: In the United Kingdom and European Economic Area, this report is being disseminated by CIMB Securities (UK)
Limited (CIMB UK). CIMB UK is authorised and regulated by the Financial Conduct Authority and its registered office is at 27 Knightsbridge,
London, SW1X 7YB. This report is for distribution only to, and is solely directed at, selected persons on the basis that those persons: (a) are
persons that are eligible counterparties and professional clients of CIMB UK; (b) have professional experience in matters rel ating to investments
falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Order); (c) are
persons falling within Article 49 (2) (a) to (d) (high net worth companies, unincorporated associations etc) of the Order; (d) are outside the

October 3, 2014

34

United Kingdom; or (e) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the
Financial Services and Markets Act 2000) in connection with any investments to which this report relates may otherwise lawfully be
communicated or caused to be communicated (all such persons together being referred to as relevant persons). This report is directed only at
relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which
this report relates is available only to relevant persons and will be engaged in only with relevant persons.
Only where this report is labelled as non-independent, it does not provide an impartial or objective assessment of the subject matter and does
not constitute independent "investment research" under the applicable rules of the Financial Conduct Authority in the UK. Consequently, any
such non-independent report will not have been prepared in accordance with legal requirements designed to promote the independence of
investment research and will not subject to any prohibition on dealing ahead of the dissemination of investment research.
United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer
and a related company of CIMB Research Pte Ltd, CIMB Investment Bank Berhad, PT CIMB Securities Indonesia, CIMB Securities (Thailand)
Co. Ltd, CIMB Securities Limited, CIMB Securities (Australia) Limited, CIMB Securities (India) Private Limited, and is distributed solely to persons
who qualify as "U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only
for Institutional Investors whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative
securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional
Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a
recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB
Securities (USA) Inc, is a FINRA/SIPC member and takes responsibility for the content of this report. For further information or to place an order
in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.
Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to
professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
Rating Distribution (%) Investment Banking clients (%)
Add 58.9% 7.2%
Hold 27.9% 3.9%
Reduce 13.2% 1.0%
Distribution of stock ratings and investment banking clients for quarter ended on 30 June 2014
1467 companies under coverage for quarter ended on 30 June 2014

Spitzer Chart for stock being researched ( 2 year data )
Berjaya Food Berhad (BFD MK)
0.90
1.40
1.90
2.40
2.90
3.40
Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14
Price Close

mSpitzerKR_KRSpitzer

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.
AAV - Good, ADVANC - Excellent, AMATA - Very Good, ANAN Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL -
Excellent, BCH Good, BCP - Excellent, BEAUTY Good, BEC - Very Good, BECL - Excellent, BGH - not available, BH - Very Good, BIGC - Very Good,
BJC Very Good, BMCL - Very Good, BTS - Excellent, CCET Very Good, CENTEL Very Good, CHG not available, CK - Excellent, CPALL - Very Good,
CPF - Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EA - Good, EGCO - Excellent, GFPT - Very Good, GLOBAL - Good, GLOW - Very
Good, GRAMMY - Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, ICHI - not available, INTUCH - Excellent, ITD Very Good, IVL -
Excellent, JAS Very Good, KAMART not available, KBANK - Excellent, KCE - Very Good, KKP Excellent, KTB - Excellent, LH - Very Good, LPN -
Excellent, M - not available, MAJOR - Very Good, MAKRO Very Good, MC - not available, MCOT - Excellent, MEGA not available, MINT - Excellent, OFM
Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS
- Excellent, SAMART - Excellent, SAPPE - not available, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIM - Excellent, SIRI - Very
Good, SPALI - Excellent, STA - Good, STEC - Very Good, SVI Excellent, TASCO Very Good, TCAP - Excellent, THAI - Excellent, THCOM Excellent,
TICON Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW - Excellent, TUF - Very Good, VGI Excellent, WORK
Good.


October 3, 2014

35

CIMB Recommendation Framework
Stock Ratings Definition:
Add The stocks total return is expected to exceed 10% over the next 12 months.
Hold The stocks total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stocks total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward
net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition:
Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition:
Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.
*Prior to December 2013 CIMB recommendation framework for stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand,
Jakarta Stock Exchange, Australian Securities Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange were
based on a stocks total return relative to the relevant benchmarks total return. Outperform: expected to exceed by 5% or more over the next 12 months.
Neutral: expected to be within +/-5% over the next 12 months. Underperform: expected to be below by 5% or more over the next 12 months. Trading Buy:
expected to exceed by 3% or more over the next 3 months. Trading Sell: expected to be below by 3% or more over the next 3 months. For stocks listed on
Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Outperform: Expected positive total returns of 10% or
more over the next 12 months. Neutral: Expected total returns of between -10% and +10% over the next 12 months. Underperform: Expected negative total
returns of 10% or more over the next 12 months. Trading Buy: Expected positive total returns of 10% or more over the next 3 months. Trading Sell: Expected
negative total returns of 10% or more over the next 3 months.

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