BreadTalk Group - RHB Invest 2017-11-06: Back To Expansion Phase

BreadTalk Group - RHB Invest 2017-11-06: Back To Expansion Phase BREADTALK GROUP LIMITED 5DA.SI

BreadTalk Group - Back To Expansion Phase

  • BreadTalk’s 3Q17 PATMI came in slightly ahead of our expectations at SGD3.7m. 
  • Given that 4Q is usually the strongest quarter, we expect BreadTalk to deliver spectacular results for the full-year. 
  • YTD, the turnaround at the Food Atrium segment has been the key driver of growth. However, we note that the group is now back on an expansion phase to drive topline growth. As BreadTalk’s share price has retreated over the last quarter, we upgrade our recommendation to BUY (from Neutral) with unchanged TP of SGD1.83 (13% upside).

Core PATMI grew 14% YoY. 

  • The Food Atrium segment is the rising star as it continues to deliver better results YoY since the completion of its rationalisation exercise last year. 
  • The Restaurant segment also showed improvement in sales as well as at the EBITDA level despite no new store openings. Restaurant EBITDA margin expanded 1.8ppts YoY on the back of better cost management.

Overhaul in bakery franchisees. 

  • During 9M17, the Bakery segment streamlined its underperforming franchisees, and searched for stronger franchisee operators. This has resulted in lower contribution from this segment.

Finding stronger partners. 

  • In September, the group sold its Malaysian Bakery assets to a joint venture (JV) with United Malayan Land (UMLand) – one of the top 10 developers in Malaysia. 
  • BreadTalk would hold 25% share in the JV. This will result in the Malaysian Bakery business being equity accounted vs consolidation. 
  • Given that UMLand has retail components in several of its property developments, we believe future bakeries would open in tandem with UMLand’s new developments.
  • We view this move positively. Based on historical its track record, we understand that the Thailand Bakery business delivered even stronger contributions to the group after BreadTalk sold its stake to a JV with Minor Group.

More collaborations to come. 

  • The group has also formed a new division – 4orth Division, aimed at finding new Food & Beverage (F&B) concepts. 
  • BreadTalk would collaborate to bring its brands to the regional level. So far, the division has formed a JV with Song Fa Holdings to bring its Bak Kut Teh brand to China and Thailand. The first Song Fa Bak Ku The in Shanghai is expected to open in 2018.

Back to growing topline. 

  • Following the major rationalisation exercise over the last three years, margins at the various segments are now intact. We believe the group is now ready to expand and grow its revenue. 
  • We upgrade our recommendation to BUY with unchanged TP of SGD1.83, pegged to core EV/EBITDA of 6x.

Juliana Cai CFA RHB Invest | 2017-11-06
RHB Invest SGX Stock Analyst Report BUY Upgrade NEUTRAL 1.830 Same 1.830