Thursday, 27 March 2014


Kim Eng on 27 Mar 2014

  • BreadTalk holds equity stakes in several real estate assets in partnership with Perennial Real Estate Holdings. Recent RTO proposal by St James highlights the value of its assets.
  • BreadTalk has the option of monetising these in the future; SGD0.56/share based on latest independent valuation.
  • Even after taking a 25% discount, our SOTP approach to cross-check raises value to SGD1.65/share. Reiterate BUY.
What’s New
St James Holdings recently announced a proposed acquisition of assets from Perennial Real Estate Holdings Pte Ltd via a reverse takeover (RTO). Although this exercise does not benefit BreadTalk at this moment, it highlights the latent value of its equity stakes. We believe it will have the option to monetise them in the future.

BreadTalk’s business model favours operating several F&B concepts in one location, which provides bargaining power with mall owners. Though viewed as non-core assets, we believe there is a strategic benefit to owning a stake in selective malls. For one, it secures retail location and hedge against rising rental costs.

What’s Our View
Based on the latest independent valuation as per the RTO document, BreadTalk’s stakes are worth SGD159m or SGD0.56/share, but recognised at a cost of SGD84m on its balance sheet. Applying a 25% discount to this, our SOTP approach to cross-check gives a higher figure of SGD1.65/share (previously SGD1.54/share). We maintain our TP of SGD1.54, pegged to 7x EV/EBITDA. This is below the lowest multiple in our comparison universe and we believe BreadTalk is still significantly undervalued. We estimate an EPS CAGR of 23% over FY14E-FY16E, driven by top-line growth of 18% CAGR and EBIT margin improvement of 0.1-0.3ppt over FY14E-FY16E (2013:4.3%).

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