INVESTORS in Berjaya Food Bhd have been advised to sell their shares in the company following a ground check on its star outlet, Starbucks, which has seen at least a 30% drop in foot traffic due to a boycott of Israeli-linked companies amid the Gaza war.

RHB Research made the sell call after estimating a 30-40% decline in business for Starbucks. This conclusion was drawn from visits to several Starbucks Coffee outlets during peak hours, as reported by the the New Straits Times.

The report said Starbucks accounted for 91% of the group’s revenue for the first quarter of the financial year 2024.

In a note released yesterday, RHB Research stated that the situation was worse than expected and might lead Starbucks to become more aggressive in its promotions to draw consumers back. The research house added that stepped-up promotions would result in an erosion of Starbucks’ gross profit margin.

The report also noted that Starbucks had reduced its net profit forecast for the financial years 2024-2026 by 21%, 17%, and 7%, respectively, “after further toning down its sales growth and gross profit margin assumptions to reflect the subdued sales, increased promotional efforts, and efforts to address the aftermath of the boycott.”

RHB Research also cut its target price for Berjaya Food by 24% to 46 sen. The stock closed at 59.5 sen yesterday.

“Our outlook for Berjaya Food has turned cautious, as the ongoing Starbucks Coffee boycott could last longer than what we initially expected if there is no near-term resolution to the Israel-Hamas conflict,” RHB stated in its report.

“Also, the post-boycott recovery may not be straightforward, and it may take Berjaya Food much effort to regain its market share, in view of the intense competition,” it added.

The Economy Ministry on November 28 had stated that the Malaysian boycott of companies linked to Israel as a show of support for Palestine does not significantly affect the national economy. 

The ministry noted that the food and beverage sub-sector contributed only 2.4% to the GDP. However, it acknowledged that the boycott is affecting workers in the sector, estimating that about 50,000 workers are employed by companies impacted by the boycott. – December 7, 2023.