BreadTalk Group - RHB Invest 2017-05-04: All Three Engines Running

BreadTalk Group - RHB Invest 2017-05-04: All Three Engines Running BREADTALK GROUP LIMITED 5DA.SI

BreadTalk Group - All Three Engines Running

  • BreadTalk announced a strong set of 1Q17 results last night. 
  • Excluding SGD9.3m of capital gain from the divestment of TripleOne Somerset, the group registered a positive PATMI of SGD1.4m – a turnaround from 1Q16 (loss of SGD5.4m). We believe the positive momentum would continue as management continues to focus on improving profitability. 
  • The group would be paying out a special dividend of 2 cents. 
  • Maintain BUY with higher TP of SGD1.60 (from SGD1.50, 14% upside) 

Restaurant segment exceeded our expectations

  • Restaurant segment exceeded our expectations as operating margins grew 2.6ppts due to narrowing losses from Ramen Play. 
  • Currently, BreadTalk Group (BreadTalk) is left with five Ramen Play restaurants in Singapore. Din Tai Fung continued to be a steady performer with incremental revenue coming from three new outlets opened last year.

Food atrium business continued its positive momentum

  • Food atrium business continued its positive momentum in 1Q17 following the turnaround last quarter. After the closure of non-performing food atriums last year, vacancy rates are now at record low. 
  • We note that there could be more room for margin improvements at its Singapore and China operations as sales for stallholders improve.

Consolidation of franchise. 

  • The bakery segment also saw improved operating margins on lower depreciation expenses after the closure of eight franchise stores in 1Q17. This year, the group has plans to consolidate its franchisees. 
  • We expect an expansion in its franchised bakeries in 2H17 to replace closed stores. We believe a consolidation of the franchise would lead to faster growth and further margin expansion from 2018F onwards.

Special dividend of 2 cents per share. 

  • BreadTalk would be paying out 60% of the divestment gain from the sale of its TripleOne Somerset investment. The stock would go ex-dividend on 19 Jun 2017. 
  • BreadTalk still holds other property investments including AXA Tower, CHJIMES and the Beijing Tongzhou Integrated development. Future divestment of these investments would be a key catalyst for its stock price, in our view.

Better operating margins across all segments, maintain BUY. 

  • All three segments delivered YoY improvements in margins. 
  • We raised our 2017F estimate by 13%, which in turn lifted our TP to SGD1.60, pegged to 2017F core EV/EBITDA of 6x.
  • Key risks to our call include a further slowdown in consumer consumption and higher-than-expected start-up losses at Din Tai Fung, UK.

Juliana Cai CFA RHB Invest | 2017-05-04
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.60 Up 1.500