BreadTalk Group Ltd - CGS-CIMB Research 2018-06-22: Bringing You F&B Delights From All Over

BreadTalk Group Ltd - CGS-CIMB Research 2018-06-22: Bringing You F&b Delights From All Over BREADTALK GROUP LIMITED SGX:CTN

BreadTalk Group Ltd - Bringing You F&b Delights From All Over

  • BreadTalk will bring China’s popular tea beverages, Nayuki and Tai Gai, to Singapore and Thailand with the first Tai Gai outlet in Singapore slated for launch in 4QFY18F.
  • It has entered into a JV to aid in the overseas expansion of Taiwan’s iconic bakery chain, Wu Pao Chun, with China, Hong Kong and Singapore as key target markets.
  • The company expects cost savings and new revenue streams to come from selling ingredients via JV partnership with 115-year-old Kobe-based firm, Shinmei Corp.
  • It targets to open Din Tai Fung’s first European outlet in London by end-FY18F.
  • The stock is now trading at 30.9x FY18F P/E and 4.0x FY18F P/BV based on Bloomberg consensus estimates.

Bringing popular Chinese tea to Singapore and Thailand via JV…

  • BreadTalk has partnered with Shenzhen Pindao Food & Beverage Management (品道) to bring popular tea beverages, Nayuki (奈雪) and Tai Gai (台盖), to Singapore and Thailand, with a right of first refusal to operate in Malaysia, Indonesia and the Philippines. 
  • Singapore will be the first overseas market, with the first Tai Gai store in the country slated for launch in 4QFY18F, adding to more than 100 stores that sell Nayuki and/or Tai Gai in China.
  • BreadTalk will hold a 90% stake of the JV (BTG-Pindao Venture Pte. Ltd) via a wholly-owned subsidiary (Together Inc Pte. Ltd.).

…Along with Wu Pao Chun Bakery

  • BreadTalk will also be partnering with Wu Pao Chun Food Ltd to help expand Taiwan’s popular Wu Pao Chun Bakery (吴宝春麦方店)’s regional footprint under a master franchise agreement. 
  • Known for its award-winning Taiwan longan with red wine bread and Taiwan Litchi Rose Champion Bread, the chain’s first JV territory for expansion will be Shanghai, where BreadTalk will have an 80% indirect stake in the JV.
  • Other cities targeted for expansion include Beijing, Shenzhen, Guangzhou, Singapore and Hong Kong.

Expects to reap cost savings from JV with Shinmei Corp

  • In Dec 2017, the group entered into a S$3m JV with Japan’s largest rice wholesaler, Shinmei Corp, for the sourcing, procurement and supply of flour, rice, and other key ingredients and product packaging for its F&B businesses, franchisees and JV partners.
  • BreadTalk holds 66% in the JV and the group expects cost savings and new revenue streams to come from selling these ingredients.

Expanding bakery amid consolidation of China outlets

  • The bakery division accounted for 23% of the group’s 1QFY18 EBITDA (S$16.3m), although EBITDA slid 31% y-o-y due to the closure of several franchise outlets in China.
  • Nonetheless, management is optimistic that the situation will turn around due to the continued expansion of its franchise outlets in other territories. The group is also planning a foray into the Japanese market with its first BreadTalk outlet to open in the country in FY18F, according to the group chairman in a 22 Dec 2017 media statement.

First Din Tai Fung restaurant in London by end-FY18F

  • BreadTalk manages the popular Taiwanese restaurant brand, Din Tai Fung (鼎泰丰), which has been the key earnings contributor to its restaurant division and accounted for 53% of the group’s 1QFY18 EBITDA.
  • BreadTalk has added three more outlets – one in Singapore and two in Thailand - since end-1QFY17 and targets to open DTF’s first European outpost in London in 4QFY18F.

Trading at 30.9x FY18F P/E based on Bloomberg consensus

  • Based on Bloomberg consensus estimates, the stock is currently trading at 30.9x FY18F P/E and 4.0x FY18F P/BV.
  • Consensus estimates FY18F dividend yield to be 2.0%. 
  • The group recently carried out a 2-for-1 share split in May 2018.

Colin TAN CGS-CIMB Research | https://research.itradecimb.com/ 2018-06-22
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