BreadTalk - RHB Invest 2018-07-19: Priced For Perfection

BreadTalk - RHB Securities Research 2018-07-19: Priced For Perfection BREADTALK GROUP LIMITED SGX:CTN

BreadTalk - Priced For Perfection

  • Maintain NEUTRAL with new SGD1.04 Target Price from SGD0.93, with 5% downside, as we roll over our valuation to FY19F.
  • Our conversation with management has us expecting earnings growth to accelerate in FY19F- 20F, as BreadTalk’s new F&B concepts mature. Still, given YTD uptick in BreadTalk share price, we think investors have priced in the strong execution of new store concepts and future earnings delivery.
  • Potential catalyst includes stronger-than-expected earnings growth.
  • Key risks are longer-than-expected gestation periods and poor traction of new concepts in new geographies.

Song Fa – surpassing expectations.

  • Based on our conversation with BreadTalk CFO, Mr Chan Ying Jian, last Monday, we understand that the Song Fa outlets in China have a payback period of less than one year.
  • We raise our FY18F earnings by 2.5% on better-than-expected performance of Song Fa.

Positive on the long-term prospects.

  • Aside from Song Fa, BreadTalk has on-boarded/established several new food & beverage (F&B) concepts including Wu Pao Chun, Sergeant Kitchen, Nayuki and Tai Gai. These concepts are expected to have much smaller capex ( < SGD0.5m/store) and higher margins compared to BreadTalk’s existing bakery, Din Tai Fung and food atrium businesses. 
  • New concepts would be incubated in the fourth division, which Mr Chan expects to contribute 20% to topline in 3-5 years.
  • Also, with the partnership with Shinmei Corp, we expect SGD80,000-100,000 pa. We expect margin expansion to come from cost-saving initiatives, as Shinmei helps to consolidate and procure more raw materials and packaging needs.

Prized for perfection.

  • Currently, trading at 25x FY19F P/E (ex investment properties value), we think the market has priced in the accelerated growth from the new F&B concepts. As we see it, BreadTalk will have to outperform market expectations for further re-rating.
  • Maintain NEUTRAL with SOP-based SGD1.04 Target Price.
  • Key risks are longer-than-expected gestation period and inability to generate consumer interests to the new concepts in new geographies.

Juliana Cai CFA RHB Securities Research | 2018-07-19
SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.04 Up 0.930