BreadTalk Group - OCBC Investment 2015-11-11: Earnings strain continues from Bakery and Food Atrium

BREADTALK GROUP LIMITED 5DA.SI

BreadTalk Group: Earnings strain continues from Bakery and Food Atrium

 3Q15 PATMI fell 60% YoY

 Higher gestation costs incurred

 Cut FV of S$1.09

BreadTalk Group's 3Q15 earnings came in lower than expected.
Driven by growth in sales for all segments (Bakery, Food Atrium, Restaurant), revenue was up 4.7% YoY to S$161.7m, meeting 24.5% of our FY15F. However, PATMI declined 60% to S$1.6m, forming 12.6% of our full-year estimate.

Note that 'Other income' was 76% higher at S$6.9m due to an increase in food atrium management fee income, while the group faced higher depreciation cost as they continue to open new outlets.
For 9M15, Bakery had a net increase of 18 outlets to a total of 835 outlets. The Food Atrium division opened four new outlets mostly in 3Q, with two in Singapore, one in Shanghai, one in Hangzhou, bringing total store count to 64.
For Restaurants, an additional Din Tai Fung (DTF) outlet is expected to open in Thailand this year.

Food Atrium's 3Q15 revenue rose 6% to S$46m, on the back of stable performance for operations in Singapore and Hong Kong. However, over 9M15, they have ceased operations of three outlets in China, while the above-mentioned four new outlets led to higher start-up expenses, resulting in a net loss.
We believe such costs will likely continue to hit profitability for a few quarters ahead.

Bakery's 3Q15 revenue was up marginally by 1% to S$79m, amid underperformance for their Beijing, Hong Kong and Malaysia operations.
Restaurant division's revenue rose 12% to S$37m on the back of strong same store sales growth, growing revenue from the two DTF outlets in Thailand, as well as contribution from Sanpoutei.
Notably, operating profit gained about 73% to S$6.1m.

Management expects its operations in China to remain challenging, and will focus on managing costs as well as turning around underperforming areas. Given the above, we have reduced our PATMI estimates by 10%/13% for FY15/16F respectively.
Rolling forward to 23x FY16F PE, our fair value estimate changes to S$1.09 (previous: S$1.14). Maintain SELL.

Jodie Foo OCBC Securities | http://www.ocbcresearch.com/ 2015-11-11

OCBC Securities SGX Stock Analyst Report SELL Maintain SELL 1.09 Down 1.14