BREADTALK GROUP LIMITED
5DA.SI
BreadTalk Group - Challenging Times
- BreadTalk continues to see demand weakness, especially in China where most of its stores are situated in shopping malls.
- However, its business restructuring remains on track and we believe bottomline margins would improve as cost management controls and under-performing stores closures are implemented.
- The group also announced the divesting of its investment in 112 Katong for SGD16m (SGD8.5m gain) in January.
- Maintain BUY with a SGD1.42 TP (from SGD1.65, 37% upside).
FY16 profit growth to be driven by bottomline gains.
- We expect revenue growth and same-store sales growth (SSSG) to remain weak, especially in China where customer footfalls have fallen significantly in shopping malls. However, bottomline is likely to grow as start-up expenses decline and underperforming stores are closed.
Impairments affecting bottomline.
- Management impaired SGD5.3m in FY15, mainly for write-offs at under-performing food courts in China. This follows the SGD3.1m in FY14, mainly for Ramen Play.
- We believe this would contribute to better bottomline going forward.
- Net of all fair value/impairment adjustments, profit would be SGD12.4m in FY15 (down 19% YoY).
Depreciation appears to have plateaued in 4Q15.
- With a less aggressive store opening plan, we believe BreadTalk’s depreciation is to slowdown and that the plan to extract more profitability from existing stores is on track.
- EBITDA grew 9% YoY in FY15 despite the challenges, especially in China.
- The key risk is a more drastic slowdown in China.
Maintain BUY.
- We cut our FY16F-17F earnings by 32-39% to account for demand weakness in China and introduce FY18 numbers.
- Despite the weak results, we believe inherent value remains and the positive business restructuring is on track. Our TP is cut SGD1.42 (from SGD1.65), pegged to 6x FY16F EV/ EBITDA.
James Koh
RHB Research
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http://www.rhbinvest.com.sg/
2016-02-26
RHB Research
SGX Stock
Analyst Report
1.42
Down
1.65
