BreadTalk Group - RHB Invest 2018-05-04: Waiting For The Next Leg Of Growth

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BREADTALK GROUP LIMITED SGX: 5DA

BreadTalk Group - Waiting For The Next Leg Of Growth

• BreadTalk Group's 1Q18 results came in below expectations. Excluding real estate earnings and headquarter costs, core F&B EBITDA declined marginally y-o-y.
• The bakery and food atrium segments were the key culprits, dragging down stellar growth at the restaurant division.
• We cut our FY18F-20F earnings by 4-7%, as we expect near term costs to run up as the group invests for the medium to longer term.
• Revise to NEUTRAL (from Take Profit) with lower Target Price of SGD1.86 (from SGD2), suggesting a 2% upside.

Weaker-than-expected performance at the bakery and food atrium segments.

• EBITDA at the bakery division fell sharply by 31%, on the back of lower revenue and operating leverage. The decline in revenue was mainly attributed to the consolidation of China franchisees, which saw the total number of franchisee outlets in China reduced by 24 compared to 1Q17.
• The food atrium operations continued to experience strong SSSG. However, overall EBITDA margin was dragged down by the closure of its Hangzhou outlet.

Restaurant division opened three new outlets – one in Singapore and two in Thailand. 

• Given the strong traction of Din Tai Fung in these two countries, revenue for the division grew 6.2% while EBITDA surged 24%, despite some start-up costs incurred for the UK Din Tai Fung, scheduled to open in 4Q18.

Expectation for next three quarters.

• We cut our FY18F-20F forecasts by 4- 7% to reflect lower-than-expected margins in the bakery and food atrium divisions in 1Q18. Nonetheless, we understand that the group has plans to expand its bakery franchisee network, and we expect earnings from the bakery segment to pick up over the next three quarters.
• We also expect lower margin at the restaurant division when the UK Din Tai Fung opens in 4Q18.

Revise to NEUTRAL with lower Target Price of SGD1.86.

• While we expect the next three quarters to chart seasonally stronger results, we remain concerned over the group’s near term earnings volatility as a result of potential startup costs for new investments.
• Key catalysts for the stock include the sale of its stake in AXA tower or CHIJMES, which would likely lead to special dividends. 
• We expect ordinary dividends to be maintained at SGD0.04 per share, in the absence of any sale of its investment properties.

Juliana Ca CFA RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-04

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