BreadTalk - DBS Research 2019-05-07: Awaiting Better Earnings Quality


BreadTalk - Awaiting Better Earnings Quality

  • BreadTalk's 1Q19 earnings in line, led by foodcourt but dragged by startup costs.
  • Results a mixed bag as drag came from bakeries in China, startup costs in 4orth and restaurant divisions.
  • Foodcourt continues to drive earnings as operating profit doubled.
  • Maintain HOLD, Target Price S$0.92.

What’s New - BreadTalk's 1Q19 in line:

  • BREADTALK GROUP LIMITED (SGX:CTN)'s 1Q19 net profit of S$1.3m (+11.5% y-o-y) was in line with our forecast. Revenue grew 6.1% y-o-y to S$158m with operating profit at S$9m (+3.8% y-o-y).
  • Revenue growth was across all segments, particularly Restaurant (+10% y-o-y, S$40.5m) and 4orth (+103% y-o-y, S$5.5m) divisions. Bakery (+2% y-o-y, S$72m) and Foodcourt (+3% y-o-y, S$38.6m) revenues also grew but by a smaller extent.

Core bakery revenue declined:

  • Although Bakery posted revenue growth of 2% y-o-y, growth was from the consolidation of Thailand’s bakeries.
  • In FY18, BreadTalk had acquired the remaining 50% stake in BTM (Thailand) Ltd, which operates bakeries in Thailand, from Minor Food Group. This resulted in consolidation of BTM’s revenues into BreadTalk’s topline. Excluding this consolidation, revenue would have fallen by 5.7% y-o-y, dragged by China stores including franchised stores, offset by revenue growth in Singapore.
  • Operating profit for this division grew 14% to S$1.1m.

4orth division continues to incur operating losses:

  • 4orth division saw marked improvement in revenue growth, but operating losses widened to S$2m.
  • So Ramen contributed positively to net profit but this was offset by startup costs of new outlets.
  • Song Fa Bak Kut Teh opened in Beijing APM Mall and CentralWorld Bangkok.

Restaurant operating profit lower:

  • The Restaurant division saw full quarter contribution from Din Tai Fung London and Central Plaza Pinklao in Bangkok. But operating profit declined 43% y-o-y to S$4.3m due to start-up costs.
  • There were two new outlets in Singapore Great World City and Terminal 21 in Thailand.

Foodcourt operating profit doubled:

  • Foodcourt doubled its operating profit to S$4.2m with strong same store sales, led by North China, East China and Hong Kong, and low vacancy.

Maintain HOLD, Target Price S$0.92.

  • With results largely in line, we maintain our earnings estimates and Target Price. Outlook continues to be mixed.
  • Startup losses are still evident in the 4orth division while new outlets are dragging operating profit at the restaurant division. Bakery revenue in China has yet to improve. We anticipate more startup costs in London for the second Din Tai Fung (at Tottenham Court Road, Centre Point).
  • There are more Song Fa Bak Kut Teh outlets planned for Shanghai, Beijing, Shenzhen, Guangzhou and Thailand which will add to startup costs.
  • Maintain HOLD at this juncture and we look to revisit our recommendation when the drag to operating profit lessens.

Alfie YEO DBS Group Research | Andy SIM CFA DBS Research | 2019-05-07
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.920 SAME 0.920