BreadTalk Group - OCBC Investment 2017-08-04: Cease Coverage

BreadTalk Group - OCBC Investment 2017-08-04: Cease Coverage BREADTALK GROUP LIMITED 5DA.SI

BreadTalk Group - Cease Coverage

  • Bakery tackling under-performers.
  • New concept to take over RamenPlay.
  • Food Atrium sustaining recovery.

Slightly mixed performance in the quarter 

  • Amid a challenging retail environment, BreadTalk Group’s 2Q17 revenue was down 1.5% YoY to S$147.6m due to a slightly mixed performance across the three F&B segments, while PATMI was up 62% to S$2.1m, translating to a net profit margin of ~1.4%. 
  • 1H17 revenue was 3% lower at S$295.2m while PATMI came up to a total of S$12.8m vs. S$3.8m in 1H16. Recall that 1Q17 saw a net capital gain of S$9.3m while 1Q16 had a gain of S$8.8m from divestments in its property investments. 
  • Overall core F&B net profit continued to improve and was up 35.1% to S$4.0m for the quarter, mainly driven by a better Food Atrium segment.

Cleaning up Bakery franchise portfolio 

  • The bakery division has eliminated a few underperformers under their Bakery franchise portfolio. Although earnings were partially impacted, management hopes this initiative will result in a higher quality franchise income in the long term. While this is on-going, efforts are also being made to address underperformers under stores that they own directly. 
  • Stores in Shanghai and Beijing were weaker as competition remains strong. In addition, we understand blended raw materials cost were ~13% higher YoY. As such, 2Q segment revenue and EBITDA was lower by 3.3% and 12.7% respectively.

Recovery at Food Atrium; new concept for Restaurant division 

  • Revenue was down 3.3% for Food Atrium due to closure of underperforming stores, but EBITDA recovered 326% to S$5.9m, led by a good performance across the entire portfolio. 
  • For the Restaurants division, revenue was up 3.7% with EBITDA largely unchanged as Din Tai Fung was flattish. 
  • The group also plans to convert the remaining RamenPlay outlets to So Ramen by end Sep-17 as management believes the new concept is able to bring in better revenue and profitability.

Ceasing coverage 

  • A higher interim dividend of 1.0 S-cents/share has been announced vs. last year’s 0.5 Scents/share.
  • Separately, the group’s property investments include AXA Tower, Chijmes and Beijing Tongzhou Integrated Development, which can help to unlock value as well. However, due to a redistribution of internal resources, we are ceasing coverage.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2017-08-04
OCBC Investment SGX Stock Analyst Report CEASE Maintain HOLD 1.210 Same 1.210