BreadTalk (DMG)

Shanghai BreadTalk in JV with Japanese bakery (BT)

The news: Shanghai BreadTalk Co, a wholly owned subsidiary of BreadTalk International has entered into a 50:50 JV agreement with Japan-incorporated Ajinomoto Bakery Co to set up a company, Shanghai ABPan Co in China. Both are collectively investing up to 46.4m yuan (S$8.8m) in the newly incorporated company which would be manufacturing and selling frozen dough for bread and Danish pastries to bakery outlets within China. Shanghai BreadTalk will construct and maintain the dough factory as well as handle distribution and administrative functions. Ajinomoto Bakary will help design the factory as well as procure the ingredients and machinery outside China.

Our thoughts: BreadTalk has always been aggressively eyeing growth in China. In 2010, BreadTalk generated S$97.8m in sales from China, up 14.2% YoY from S$85.6m in 2009. This accounted for 32.3% of total sales. The announcement of a JV with Ajinomoto Bakery into manufacturing and selling of frozen dough appears that the Group is intending to move upstream. This should help it generate better margins for its own retail business in China.