Background: BreadTalk Group was formed 11 years ago and has transformed itself from a local bakery into a multi-brand F&B player across Asia, with more than 500 outlets. Its three main business segments are bakery (own and franchised), food court and restaurant.
Recent development: BreadTalk has entered into a Heads of Agreement to subscribe for $18m junior bonds, including preference shares, with Perennial Real Estate’s subsidiary PRE 8. PRE 8 recently purchased Chijmes for $177m, which the firm could leverage on and secure prime retail space in the future. This is similar to its investment in 112 Katong, the former Katong Mall, in November 2009 when the group subscribed for $10m junior bonds. The project is nearing completion and has secured approximately 95% occupancy rate as of last month.
Our view
3Q11 results. Driven largely by outlet expansion and higher same store sales, BreadTalk’s main segment, bakery sales, grew by 20.4% YoY to $45.9m in 3Q11, while restaurants grew by 37.3% and franchise, 8.7%. Operating margins improved by 5ppt through cost management.
Double-digit growth YoY. The group has consistently achieved double-digit growth in all segments in the past five years. Previously, start-up losses and underperformances from the new restaurant brands and concepts weighed on its profits. BreadTalk has slowed down the opening of restaurants and focused on expanding through the franchise model of its bakery brands, BreadTalk and Toast Box. Since 2008, it has established more than 40 franchised outlets each year.
Thailand Din Tai Fung sees overwhelming response. The first Din Tai Fung restaurant in Bangkok opened in May this year and is already profitable. Encouraged by the response, the group plans to increase its brand offerings by operating food courts and atriums in Thailand.
Healthy cash flow. BreadTalk’s cash flow has remained healthy, buoyed by strong operating activities. The group currently is in a net cash position of $52.8m, which translates to 35% of its market capitalisation. It has also bought back 1.09m shares since June this year for $0.46-0.59 each. We estimate the stock is trading at a discount against its peers’ PER of 17.8x with an annualised PER of 15.8x. This is considered conservative as the last quarter is usually its strongest.
Key ratios…
Price-to-earnings: 13.7x
Price-to-NTA: 2.1x
Dividend per share/ yield %: S$0.01/ 1.9%
Net cash/(debt) per share: S$0.19
Net cash as % of market cap: 35.0%
Share price S$0.54
Issued shares (m) 280.8
Market cap (S$m) 149.9
Free float (%) 41.6
Recent fundraising activities Nil
Financial YE 31 Dec
Major shareholders Quek Tong Meng – 34.0%
YTD change -15.8%
52-wk price range $0.46-0.72
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