Berjaya Food Berhad: Navigating Earnings Challenges Through Ownership Alignment and Strategic Diversification

In the volatile world of food and beverage franchising, Berjaya Food Berhad (KLSE: BJFOOD) stands at a crossroads. The company's recent struggles—exacerbated by the boycott of its Starbucks outlets in Malaysia—have forced it to pivot aggressively toward diversification. But can its ownership structure and operational strategies provide the resilience needed to reverse declining fortunes? Let's dissect the interplay of governance, market expansion, and financial risk to assess the stock's potential.

Ownership Structure: A Double-Edged Sword

Berjaya Food's shareholder base is a mosaic of concentrated control and fragmented influence. Berjaya Corporation Berhad, its parent company, holds a commanding 51% stake, granting it near-absolute authority over strategic decisions. This majority control ensures rapid execution of initiatives like the Paris Baguette expansion but raises questions about alignment with minority shareholders. Public companies, meanwhile, own 52% of the equity, creating a paradox: a single entity (Berjaya Corp) holds a slight edge in voting power, yet public stakeholders collectively hold a larger financial interest. This dynamic could lead to friction if governance priorities diverge.

Institutional investors (17%) and insiders (RM33 million in a RM1.0 billion market cap) add layers of complexity. While institutional ownership signals credibility, the lack of hedge fund presence suggests limited short-term speculation. Insiders' holdings are a positive, aligning management with shareholders, but their recent trading activity remains undisclosed—a gap investors should monitor.

Strategic Diversification: Can Paris Baguette Be a Lifeline?

The company's most ambitious move is the Paris Baguette expansion into Brunei and Thailand, set to launch in Q3 2025. This follows the brand's successful entry into the Philippines in 2024, where two stores opened to strong reception. The strategy is clear: leverage Paris Baguette's global reputation (4,000+ locations worldwide) to offset Starbucks-related losses.

However, the financials tell a mixed story. Q3 2025 revenue fell 7.74% to RM113.58 million, with a net loss of RM37.19 million. While 2025 net sales are projected to rise slightly (RM1.11 billion, +0.56% YoY), EBITDA and EBIT are forecast to decline by 5.34% and 3.08%, respectively. The company has sold assets like its stake in 7-Eleven Malaysia, raising questions about its ability to fund new stores. Each Paris Baguette outlet in Southeast Asia costs RM1.5 million, with a one-year gestation period—a heavy lift for a company already bleeding cash.

Governance and Resilience: A Test of Leadership

Berjaya Corp's dominance ensures swift execution of high-risk, high-reward strategies. The parent company's 51% stake means it can prioritize long-term growth over short-term shareholder appeasement. Yet, this control also limits transparency. For example, the CEO's 6.6% insider stake (RM356 million in Berjaya Corp) suggests alignment with broader Berjaya interests, but it's unclear whether this translates to independent oversight of Berjaya Food's operations.

The recent closure of 25 underperforming Starbucks stores in Malaysia and the acquisition of Nordic Starbucks rights (RM2 million per store) highlight a shift toward regional diversification. This move could mitigate geopolitical risks, but the success of the Nordic venture hinges on cultural acceptance of the brand—a gamble in a market unfamiliar with Starbucks.

Risks and Rewards: A Cautious Bull Case

Berjaya Food's turnaround hinges on three factors:
1. Paris Baguette's scalability in Brunei and Thailand, where café culture is nascent but growing.
2. Starbucks' recovery in Malaysia, which depends on the resolution of the Israel-Gaza conflict and shifting consumer sentiment.
3. Operational discipline, including cost control and asset optimization (e.g., the recent 7-Eleven divestments).

If the Paris Baguette expansion gains traction and the Nordic Starbucks outlet succeeds, the company could stabilize its revenue base. However, the path is fraught with execution risks. The market cap of RM1.0 billion implies a low-conviction bet, but for investors with a 3–5 year horizon, the stock's volatility and undervaluation relative to its growth ambitions could create entry opportunities.

Final Verdict: A High-Risk, High-Reward Play

Berjaya Food Berhad is a stock for the bold. Its ownership structure provides the firepower for aggressive expansion but lacks the checks and balances of more diversified governance. The Paris Baguette strategy is innovative, yet its financials remain fragile. Investors should adopt a cautious stance: monitor the Q3 2025 store openings and the Nordic Starbucks progress, and consider small positions for those willing to ride the volatility. For now, this is a speculative bet on a company at war with its own challenges—and one that could either revive its fortunes or crumble under the weight of its ambitions.