BreadTalk Group

OCBC on 13 Aug 2012

BreadTalk Group’s (BTG) 1H12 performance did not disappoint: Its top-line recorded a growth of 24.6% YoY to S$210.9m while its bottom-line increase of 22% YoY to S$4.5m, which formed 50% and 37% of our FY12 estimates. The restaurant segment proved to be a surprise as its Din Tai Fung chain in Singapore and Thailand remained popular amongst consumers, and helped to offset unprofitable performances in its Ramen Play and Carl’s Junior (China) business as well as weaker contributions from its bakery and food court segments. BTG also announced a 0.5 S cents interim dividend for the first time in its history. Going forward, we anticipate continued slowdowns in retail sales in both of its key markets of China and Singapore, which may exacerbate raw material costs increases in 2H12. As a result, we leave our FY12/13 projections unchanged but assign a lower multiple of 11x (12x previously) to our blended FY12/13 earnings. Maintain HOLD at a reduced fair value of S$0.51 (S$0.56 previously).

1H12 results within expectations
BreadTalk Group’s (BTG) 2Q12 results did not disappoint. It reported a 21.8% YoY increase in revenue to S$104.8m on the back of strong growth in its restaurant segment and a corresponding PATMI increase of 9.2% YoY to S$3.0m. In terms of its 1H12 performance, BTG’s results were well-within our expectations with a top-line growth of 24.6% YoY to S$210.9m and a bottom-line increase of 22% YoY to S$4.5m, which formed 50% and 37% of our FY12 estimates. BTG also announced a 0.5 S cents interim dividend for the first time in its history.

Restaurant segment key surprise
As previously envisioned, the general pullback in retail sales did have some impact on BTG’s bakery and food court segments as both experienced drop-offs in growth rates. Increases in wage costs in China and Singapore as well as refurbishments for its food courts in Wisma Astria and China also weighed down contributions. However, the restaurant segment proved to be an exception with its Din Tai Fung (DTF) restaurants in Singapore and Thailand remaining popular amongst consumers as encouraging growth in its new outlets in Marina Bay Sands, NEX etc and Thailand helped to offset unprofitable performances in its Ramen Play and Carl’s Junior (China) business.

Challenging environment ahead
Aside from the anticipated increase in raw material costs in 2H12, BTG is also likely to face continued slowdowns in retail sales in both of its key markets of China and Singapore, which account for approximately 30% and 50% of its top-line currently. Although retails sales in both countries are still up on a YoY basis, decreasing confidence in the global economy and unemployment concerns will push MoM figures down. According to some economic estimates, China is not expected to show improvements until at least 4Q.

Maintain HOLD but lower FV
While we leave our FY12/13 projections unchanged retain our confidence in management’s ability to control costs, we assign a lower multiple of 11x (12x previously) to our blended FY12/13 earnings on account of the expected weakness in consumer demand, which may weigh negatively on valuations across the consumer sector. Maintain HOLD at a reduced fair value of S$0.51 (S$0.56 previously).