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

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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 | https://www.rhbinvest.com.sg/ 2018-07-19

SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 1.04 Up 0.930