SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
27 March 2013
Co. Reg No: 198700034EMICA (P) : 099/03/2012
Have a MINT, Have a BreadTalk
A prized jewel to be swept up.
Primacy Investment, a wholly-ownedsubsidiary of Minor International (MINT) in Thailand, surfaced as ashareholder in January and purchased an additional 2.58% last week atan average of SGD0.83 a share, reaffirming our suspicions that Minormay just be getting started. As one of the largest hospitality and leisurecompanies in Asia, MINT has a track record of acquiring establishedrestaurant brands, namely Coffee Club and Thai Express in Singapore.With BreadTalk’s premium reputation as a bread operator, andentrenched position in Asia, this could be the prized jewel which Minorhas been waiting for.
Who is Minor International (MINT)?
MINT is a hospitality businessheadquartered in Thailand. It operates over 1,300 restaurants and 80hotels and resorts in Asia, the Middle East and Africa, and also has 200retail outlets for lifestyle brands. In recent years, MINT has beensteadily building up its restaurant brand portfolio, and recently acquiredRiverside & Courtyard restaurant in China in Dec 2012 and ThaiExpress in Dec 2011.
Highly desirable brands all packaged into one.
In our view,BreadTalk offers MINT an excellent portal to extend its cross-sellingchannels, as well as an opportunity to strengthen and add prominentbrands to its growing overseas portfolio. BreadTalk is a leading bakerychain in Singapore, which has restaurants and cafes also figuringprominently in its portfolio. In China, it has acquired a reputation as apremium bakery operator and is poised to take advantage of thecountry’s rising affluence. BreadTalk’s established ties with localbusinessmen through franchising and JV agreements have also helpedspur its growth in China and facilitate access to domestic resources.
What Minor could offer to BreadTalk in return.
We believe if BreadTalk wants to achieve greater success in China, it may have to join hands with large F&B conglomerates. The support of strong parentcompanies offers leverage and better expansion opportunities forbakery chains. For example, Saint Honore Holdings was privatised byConvenience Retail Asia (CRA), one of Li & Fung’s subsidiaries, for15.6x 2006 PER. Maxim Caterers Hong Kong, an equally strongcompetitor, is 50% owned by Dairy Farm International.
Deserving of more premium valuations.
Current valuations of BreadTalk are below peers with a forward consensus P/E of 15.6xagainst 16.5x. Granted BreadTalk’s valuation is not too far off its peers.One reason may be MINT believed that BreadTalk’s profits areunderstated by its expansion costs and the stock will look cheap oncethe expansion phase slows. We believe BreadTalk deserves a morepremium valuation for its multi-country success in growing its bakerychain.
Share price: SGD0.875Target price: n/a
Alison FOKalisonfok@maybank-ke.com.sg(65) 6432 1447
BreadTalk Group Limited manufactures andretails a variety of food, bakery, and confectionery products.The Company also operates food and drinks sale outlets,eating houses, and restaurants.Ticker: BREAD:SPShares Issued (m): 280.6Market Cap (USD m): 197.93-mth Avg Daily Turnover (USD m): 0.4ST Index: 3,288.5Free float (%): 36
George Quek & Wife 52.7Primacy Investment 8.85
ROE (%) 14.5Net gearing (x): 0.4NAV/shr (SGD): 0.3
52-week High/Low SGD0.89/SGD0.461-mth 3-mth 6-mth 1-yr YTD Absolute (%)15.1 29.6 50.9 53.6 28.7Relative (%)13.9 25.4 39.8 38.9 23.9