Unlocking Success: How Berjaya Food Berhad Overcomes Earnings Challenges with Ownership Alignment and Smart Diversification Strategies

In the fast-changing world of food and beverage franchising, Berjaya Food Berhad (KLSE: BJFOOD) is facing tough times. The boycott of its Starbucks outlets in Malaysia has hit hard, pushing the company to explore new paths. Is its ownership structure and business strategy strong enough to bounce back? Let’s break this down.

Ownership Structure: Strengths and Weaknesses

Berjaya Food’s ownership is a mix of tight control and scattered influence. The parent company, Berjaya Corporation Berhad, holds a significant 51% stake, giving it major sway over decisions. This allows quick actions, like expanding the Paris Baguette brand, but raises concerns for minority shareholders who may feel left out. Public companies own 52% of the equity, creating a complex situation where one entity holds a key voting power while many small stakeholders have more financial interest.

Institutional investors own about 17%, which shows credibility, but the absence of hedge funds may limit short-term movements. Insiders have invested RM33 million, aligning their interests with shareholders, but their recent actions lack transparency. This gap in information is something to watch closely.

Diversifying: A Ray of Hope?

One of Berjaya Food’s boldest moves is expanding Paris Baguette into Brunei and Thailand, expected to start in Q3 2025. This follows its success in the Philippines, where two stores opened in 2024 and received positive feedback. The goal is to use Paris Baguette’s global reputation to make up for losses from Starbucks.

However, the financial outlook isn’t all rosy. In Q3 2025, revenue dipped 7.74% to RM113.58 million, with a net loss of RM37.19 million. Projections for 2025 suggest a slight revenue increase (RM1.11 billion, +0.56% YoY), but declines in earnings before interest and taxes are expected. The company has also sold its stake in 7-Eleven Malaysia to raise funds, but each Paris Baguette store in Southeast Asia will cost RM1.5 million and needs a year to break even. This could strain an already tight budget.

Governance: A Balancing Act

With Berjaya Corporation in control, swift decision-making can happen, but this also brings concerns about transparency. The CEO’s 6.6% ownership could align intentions with Berjaya’s broader goals, but it leaves open questions about independent oversight of Berjaya Food.

The closure of 25 underperforming Starbucks stores and the acquisition of Nordic rights (RM2 million per store) signify a shift in strategy. This move aims to guard against regional risks, though the acceptance of Starbucks in the Nordic market remains uncertain.

Evaluating Risks and Opportunities

Berjaya Food’s future hinges on three key factors:
1. The growth potential of Paris Baguette in Brunei and Thailand, where café culture is on the rise.
2. The rebound of Starbucks in Malaysia, which will rely on how geopolitical issues are resolved and changing customer attitudes.
3. Maintaining tight operational control to manage costs effectively.

If Paris Baguette thrives and the Nordic Starbucks venture proves successful, the company could achieve stability. However, achieving these goals isn’t guaranteed. With a market cap of RM1.0 billion, some investors may see it as a cautious bet, especially for those with a 3–5 year investment horizon.

Final Thoughts

Investing in Berjaya Food Berhad carries risks but also potential rewards. The ownership structure gives it leverage for expansion but lacks a robust governance framework. The Paris Baguette plan is promising, but its financial health remains shaky. For those willing to navigate the volatility, keeping an eye on upcoming openings and the Nordic strategy could be key to figuring out whether this stock is worth it. It’s a gamble on a company that must confront its challenges head-on to thrive.

Source link