SINGAPORE (July 19): RHB is reiterating its “neutral” recommendation on BreadTalk with an increased target price of $1.04.
This came following the research house having a conversation with BreadTalk, which led to RHB expecting earnings growth for the group to accelerate in FY19-20, as its new F&B concepts mature.
Chan Ying Jian, CFO of BreadTalk said during the conversation that the group’s Song Fa outlets in China have been doing well and that the outlets were profitable from the first month of operations. The outlets are expected to have a payback period of less than one year.
In a Thursday report, analyst Juliana Cai says, “We raise our FY18 earnings by 2.5% on better-than-expected performance of Song Fa.”
Apart from Song Fa, the group has onboarded/established several new F&B concepts including Wu Pao Chun, Sergeant Kitchen, Nayuki and Tai Gai, which are all expected to have much smaller capex of less than $0.5 million per store and higher margins compared to its existing bakery, Din Tai Fung and food atrium businesses.
Chan also said that new concepts will be incubated in the fourth division, which are expected to contribute 20% to the group’s topline in three to five years.
In addition, the analyst expects more cost-saving measure to be implemented in the long run with the group’s partnership with Shinmei Corp.
This includes standardising all bottled water sold by BreadTalk, which is estimated to generate net-saving of $80,000 to $100,000 yearly.
“We expect margin expansion to come from cost-saving initiatives, as Shinmei helps to consolidate and procure more raw materials and packaging needs,” says Cai.
The stock is currently trading at 25 times FY19 earnings (ex investment properties value, which the analyst thinks that the market has priced in the accelerated growth from the new F&B concepts and the group will have to outperform the market expectations for further re-rating.
As at 10.30am, shares in BreadTalk are trading 2 cents higher at $1.12 with a FY19 dividend yield of 2.2%.
