BreadTalk Group - RHB Invest 2016-05-11: Divestment Gain Props Up Bottomline This Quarter

BreadTalk Group - RHB Invest 2016-05-11: Divestment Gain Props Up Bottomline This Quarter BREADTALK GROUP LIMITED 5DA.SI 

BreadTalk Group - Divestment Gain Props Up Bottomline This Quarter

  • We expect its Food Atrium division to remain a drag on profitability in 2016, as it continues to close down unprofitable stores and open new locations. 
  • Maintain BUY with an unchanged SGD1.42 TP (21% upside). 
  • Bottomline would likely be powered by Din Tai Fung, which remains very profitable and its bakery division that is showing encouraging signs of margin improvements. 
  • Management has announced a special dividend of SGD1.35 cents/share this quarter, after a SGD8.5m divestment gain on Katong 112.

Expect Food Atrium division to continue losses this year. 

  • This division has been the main drag for the past few quarters. 
  • We expect further losses in 2Q16, as Breadtalk accounts for store closures in 1Q16 (five stores YTD in China). 
  • Traffic continues to be weak in many shopping malls in China, and is unlikely to improve in the near-term.

Din Tai Fung to be main profit driver in 2016. 

  • While some margin improvements are coming through its bakery division, we expect the restaurant division to continue being the main profit driver, post the restructuring completion of Ramen Play.

1Q16 unprofitable without the divestment gain on Katong 112. 

  • Bottomline includes a SGD8.5m gain, though it was offset by higher staff costs and store closure provisioning. 
  • We estimate PATMI would just break-even this quarter excluding the one-off factors.

Clearer picture in 2H16. 

  • We keep our estimates unchanged for now, and expect a clearer picture after 2Q16 when the Food Atrium store closures and provisioning are fully completed. 
  • While we are cognisant of Breadtalk’s tough operating environment, we believe there is still value in the stock. 
  • Our TP of SGD1.42 remains pegged to 6x FY16F EV/ EBITDA.

James Koh RHB Research | http://www.rhbinvest.com.sg/ 2016-05-11
RHB Research SGX Stock Analyst Report BUY MAINTAIN BUY 1.42 Same 1.42