RHB Securities 2015-08-11: Breadtalk Group - 2Q15; Margin Improvements Despite Challenges. Maintain BUY.

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BREADTALK GROUP LIMITED 5DA.SI

Margin Improvements Despite Challenges 

• 2Q15 results were in line with expectations, with 1H15 net profit attributable making up 32% of our previous full-year forecast. 
• 2H typically makes up around 65% of profitability due to seasonality. 
• Reiterate BUY with a TP of SGD1.90 (from SGD1.80, 42% upside). 
• Margin improvements remain on track, even after a SGD1.5m write-off after early closure of two food courts in China. 

 2Q15 net profit attributable up 10% YoY despite challenges. 

• Revenue was up 11% YoY, with broad-based growth across all segments. 
• Net profit attributable came in at SGD2.9m despite taking SGD1.5m closure write-offs on two underperforming food courts in China. 
• EBITDA margins improved significantly YoY (to 11.8% in 1H15 from 11.5% in 1H14), in line with our investment thesis that there is significant room for margin improvements both: i) operationally, and ii) from moderation of depreciation expenses. 

 Restaurant division profitability. 

• 1H15 EBITDA for the restaurant division surged 71.4% YoY, continuing the strong trend from 1Q15 due to a lower drag from the unprofitable RamenPlay and strong same-store sales growth (SSSG) trends at its Din Tai Fung restaurants. 
• Last year, the group closed down six RamenPlay stores and may trim the remaining seven stores further as leases expire over the next 12-18 months. 
• We believe margins will improve further. 

 Slowdown in China affecting food courts. 

• The slowdown in mainland China has translated to weaker footfalls in shopping malls, especially in first-tier cities where BreadTalk’s food courts primarily operate. 
• This will likely slow down its expansion plans this year (it previously targeted around five new outlets). 
• However, overall profitability will likely improve with the maturing of food courts (26 out of current total of 61 opened between 2011 and 2014). 

 Reiterate BUY. 

• We trim our FY15-FY17 earnings estimates by 2-4% and roll over our TP to SGD1.90, based on 7.5x FY16F EV/EBITDA. 
• We remain confident of our medium-term margin improvements thesis and reiterate BUY. 
• BreadTalk remains one of our Top Picks for the Singapore consumer sector.

James Koh | http://www.rhbgroub.com/ RHB Securities 2015-08-07

BUY Maintain BUY 1.90 Up 1.80