Bread Talk
Singapore | Food & Staples Retailing
Asia Pacific Equity Research
BREADTALK GROUP | SELL
MARKET CAP: USD 213M
19 Sep 2013
Company Update
AVG DAILY TURNOVER: USD 0.4M
WHY THE RUSH?
SELL (maintain)
•
Recent appreciation unwarranted
Fair value
•
•
Investors paying ahead of results
No takeover story at this point
add: 12m dividend forecast
S$0.77
S$0.010
S$0.96
versus: Current price
12m total return forecast
Too fast too much too soon
With BreadTalk’s share price seemingly poised to cross the S$1 barrier again, we remain steadfast in our analysis and assertion that investors are overpaying at current levels. To be fair, on paper,
BreadTalk’s growth prospects appear attractive: i) targeting emerging consumer markets like China, Taiwan, ii) owns a high-profile bakery brand and franchise rights to the popular Din Tai Fung restaurant, and iii) operates a chain of domestic food courts. However, realizing future potential takes time, and more importantly, carries significant operating and execution risks. With BreadTalk currently trading at a trailing twelve month (TTM) PE of 22.4x, which is an all-time high for the group since listing in 2003, it seems that investors are already rewarding the company before a dollar is even made. In fact, from
FY09-12, the group’s operating profit and PATMI only grew by a CAGR of 4.6% and 2.7% respectively, despite revenue increasing by a CAGR of 22.0%. Operating margins also remain in the low single-digit territory, and we expect this trend to continue in the coming quarters.
Valuation high versus peers
Because of these low operating margins, it is hard to justify
BreadTalk’s current valuation against its more established regional peers in the bakery or restaurant segments that compete in the same markets. In our comparison, the average gap can be as wide as 8ppt.
No takeover from MINT; maintain SELL
MINT’s recent addition to its shareholdings notwithstanding, we
Asia Pacific Equity Research
BREADTALK GROUP | SELL
MARKET CAP: USD 213M
19 Sep 2013
Company Update
AVG DAILY TURNOVER: USD 0.4M
WHY THE RUSH?
SELL (maintain)
•
Recent appreciation unwarranted
Fair value
•
•
Investors paying ahead of results
No takeover story at this point
add: 12m dividend forecast
S$0.77
S$0.010
S$0.96
versus: Current price
12m total return forecast
Too fast too much too soon
With BreadTalk’s share price seemingly poised to cross the S$1 barrier again, we remain steadfast in our analysis and assertion that investors are overpaying at current levels. To be fair, on paper,
BreadTalk’s growth prospects appear attractive: i) targeting emerging consumer markets like China, Taiwan, ii) owns a high-profile bakery brand and franchise rights to the popular Din Tai Fung restaurant, and iii) operates a chain of domestic food courts. However, realizing future potential takes time, and more importantly, carries significant operating and execution risks. With BreadTalk currently trading at a trailing twelve month (TTM) PE of 22.4x, which is an all-time high for the group since listing in 2003, it seems that investors are already rewarding the company before a dollar is even made. In fact, from
FY09-12, the group’s operating profit and PATMI only grew by a CAGR of 4.6% and 2.7% respectively, despite revenue increasing by a CAGR of 22.0%. Operating margins also remain in the low single-digit territory, and we expect this trend to continue in the coming quarters.
Valuation high versus peers
Because of these low operating margins, it is hard to justify
BreadTalk’s current valuation against its more established regional peers in the bakery or restaurant segments that compete in the same markets. In our comparison, the average gap can be as wide as 8ppt.
No takeover from MINT; maintain SELL
MINT’s recent addition to its shareholdings notwithstanding, we