BreadTalk Group - RHB Invest 2016-09-16: Product Innovation Is Key

BreadTalk Group - RHB Invest 2016-09-16: Product Innovation Is Key BREADTALK GROUP LIMITED 5DA.SI

BreadTalk Group - Product Innovation Is Key

  • BreadTalk is still lacking in terms of customer engagement via social media marketing and creative advertising, in our view. 
  • Nevertheless, in Singapore, where the bakery business is highly fragmented with many small individual players, we believe product innovation is more important in attracting consumers’ attention. In this aspect, we reckon BreadTalk has done well in introducing new product ranges.

No e-commerce presence as yet. 

  • BreadTalk Group (BreadTalk) does not have any e-commerce presence at the moment. We believe this is because the food and beverage (F&B) industry is one of the hardier consumer sub-sectors, hence less threatened by e-commerce.

Unique offline experiences. 

  • While traditional brick-and-mortar retailers are unable to compete with e-commerce when it comes to cost, eateries and restaurants such as BreadTalk’s Toast Box and Din Tai Fung, are able to provide unique dining experiences that cannot be replicated via the internet.
  • Bakeries, on the other hand, offer perishable products, which people are more comfortable buying off-the-shelf.

Strong branding… 

  • BreadTalk’s brands are famous for their sleek, clean and “see-through” kitchens. Its bakeries are also recognised as pioneers of artisanal bread in Singapore, while its Din Tai Fung restaurants are well-known for its affordable and good quality steamed buns called “Xiao Long Bao”.

…but lacks new content. 

  • With 42 BreadTalk bakeries, 69 Toast Box eateries, 20 Din Tai Fung restaurants and 15 Food Republic food courts across Singapore, strong brand visibility has been established. Such high visibility has however resulted in a lack of new marketing content, in our view.

Early stages of social media adoption. 

  • The company is in the early stages of social media adoption and has set up active accounts on Facebook and Instagram. We note that BreadTalk’s Facebook page has a greater number of “likes” compared to some of its Singapore peers. 
  • Nevertheless, we have yet to see significant push advertisements by BreadTalk on social media.

Product innovation more important. 

  • The bakery market in Singapore is saturated with many small individual players. 
  • Baked products such as BreadTalk’s famous “pork floss bread” can be easily replicated. As such, BreadTalk has to continuously innovate and introduce new products to retain its customers. 
  • In addition, Singaporeans love novelty. The company will need a variety of stall offerings at its food atriums to compete with other food courts, coffee shops and hawker centres, in our view. 
  • Reiterate BUY with unchanged TP of SGD1.45 (41% upside), based on FY16F EV/EBITDA of 6x.

Juliana Cai RHB Invest | http://www.rhbinvest.com.sg/ 2016-09-16
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.450 Same 1.450