BreadTalk Group - RHB Invest 2018-03-19: Locking In Profit At This Level

BreadTalk Group - RHB Invest 2018-03-19: Locking In Profit At This Level BREADTALK GROUP LIMITED 5DA.SI

BreadTalk Group - Locking In Profit At This Level

  • BreadTalk's share price has surged 14.1% YTD, outperforming the STI index by 10.9%. We believe the market has factored in the higher dividends as well as potential earnings growth from its existing businesses. However, with more JVs in the pipeline, we think that the rising capex and start-up costs could be a near-term overhang. 
  • As such, we recommend investors to TAKE PROFIT (from Buy), with an unchanged Target Price of SGD2.00 (3% upside), and accumulate at lower levels.

New food & beverage (F&B) concept would be positive in the mid to long term. 

  • After several years of major rationalisation exercises, BreadTalk is now back in its expansion phase. Group CEO, Mr Henry Chu, is keen on BreadTalk partnering with established F&B companies to expand into geographies it is familiar with. 
  • We note that since the appointment of Mr Chu as the new CEO last July, the group has signed partnerships with Song Fa Holdings, Shinmei Co Ltd, and Wu Pao Chun Bakery.
  • BreadTalk has plans to lift its net margin significantly from its current level of 3% over the next five years. According to management, these new ventures have the potential to earn high-margins. We are positive on its medium-term prospects and believe they are essential in helping the group achieve its 5-year goal.

Increased capex and start-up expenses could result in near-term overhang. 

  • This year, the total number of new store openings are expected to be ramped up. While we think the bulk of the bakery expansion is likely to be done through the franchisees, the group has plans to open three Song Fa outlets in China, one Din Tai Fung outlet in the UK and a few more Din Tai Fung restaurants in Thailand this year. There could also be new food atrium openings in China cities where BreadTalk has a strong track record. In addition, CFO, Mr Chan Ying Jian, highlighted during the last analyst briefing that there could be a few more JVs coming up.
  • As such, we expect the increasing start-up costs and rising overhead expenses to limit the upside in its earnings growth. We estimate BreadTalk to spend around SGD200m in capex over the next three years.


  • BreadTalk’s share price has done well YTD, surging 14.1% and surpassing the FTSE Straits Times Index (FSSTI) by 10.9%. We believe the market has factored in the higher dividends as well as the potential earnings growth arising from the expansion of its bakery franchisee network and solid performance in its restaurant and food atrium divisions.
  • Given that the group has recently signed several new JVs, we think the higher capex could be a near-term overhang on its outlook. 
  • Rising start-up costs could also limit a further upside in earnings growth. With the current share price reaching our Target Price of SGD2.00, we now recommend investors to TAKE PROFIT (from Buy) and accumulate when prices are closer to SGD1.70, which implies 6x core EV/EBITDA plus investment properties’ net asset value.

Juliana Ca CFA RHB Invest | http://www.rhbinvest.com.sg/ 2018-03-19
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