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breadtalk KE (3)

breadtalk KE (3)

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11/10/2012

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SEE APPENDIX I FOR IMPORTANT DISCLOSURES ANDANALYST CERTIFICATIONS
Co. Reg No: 198700034EMICA (P) : 090/11/2009
 
Singapore Consumer 16 November 2009
 
BUY BreadTalk Group
 
3Q09 Results
 
Hungry for Growth
 
Analyst
 
Pauline LEEpaulinelee@kimeng.com(65) 6432 1453
Price $0.495
 
Target $0.86
 
ST Index 2,727.23
Historical Chart
0.200.300.400.500.60
     1     7   -     N    o    v   -     0     8     1     5   -     D    e    c   -     0     8     1     2   -     J    a    n   -     0     9     0     9   -     F    e     b   -     0     9     0     9   -     M    a    r   -     0     9     0     6   -     A    p    r   -     0     9     0     4   -     M    a    y   -     0     9     0     1   -     J    u    n   -     0     9     2     9   -     J    u    n   -     0     9     2     7   -     J    u     l   -     0     9     2     4   -     A    u    g   -     0     9     2     1   -     S    e    p   -     0     9     1     9   -     O    c     t   -     0     9     1     6   -     N    o    v   -     0     9
05001,0001,5002,0002,500Vol ('000)Price ($)
 
Performance 1m 3m 6m
Absolute (%) -2.0 11.2 32.0Relative (%) -2.7 7.3 3.6
Stock Information
Ticker code BRET.SI
 
BREAD SP
 
Market cap (US$m) 83.952-week high (S$) 0.5352-week low (S$) 0.28Shares issued (m) 234.96m avg d.vol (US$m) 0.1Free float (%) 47.6
 
Major shareholders (%)George Quek & family (52.4)Keywise Capital (11.0)
Key Indicators
ROE (%) 19.6Net cash (S$m) 41.2NAV (S$) 0.247Interest cover (x) 25
Setting the stage for future growth
The group achieved a net profit of $2.68m in 3Q09 (+248% yoy, -20%qoq). Its 3Q earnings were below our expectations largely due to weaksequential performance underpinned by the temporary closure of itslargest food court in Beijing and the pre-operating cost of the new Ramenbusiness of $0.4m. This temporary setback does not change our positivestance on BreadTalk’s long-term growth prospects.
Nine months profits rose by 129%
Thanks to its on-going expansion and innovation, BreadTalk’s profitabilityYTD was up a notch from a year ago. Double-digit revenue growth wasrecorded across all business and geographical segments. Fuelling thegrowth were its franchises (+31%) and Hong Kong operations (+47%). Inthe meantime, operating efficiencies are improving as operating marginsrose from 5% to 6.8%.
Putting the freshest ingredients to work
The expansion of its bakery business in the PRC will be well-supportedby the new factories set up in Shanghai and Beijing. The various brandsunder the group’s portfolio are growing steadily and its Ramen conceptwill be launched in Shanghai in 4Q09. In addition, more outlets will be setup in high-traffic locations such as 313 Somerset, Singapore IntegratedResort and several good locations in the PRC and Hong Kong next year.
Sustainable growth in FY10 and beyond
The coming 4Q results may not be exciting as its Beijing food court is stillunder refurbishment until the year-end and set-up costs remain high.However, these expansion and store enhancement efforts will beinstrumental for future growth. The PRC market, which is its key growthengine, stays vibrant. Its first Carl’s Junior outlet in Shanghai (opened inSep 09) has received good response.
A growth stock that is recession-proof
We have trimmed our FY09 earnings estimates by 9% to factor in amuted 2H09 due to its China food court closure. However, our SOTPtarget price is raised to 86 cents as we roll over to FY10 earningsestimates. At the pace of adding at least 60 bakery outlets and two foodcourts a year, we believe the group will soon be able to reach a criticalmass to achieve steady and sizeable returns. Maintain BUY.
Year End Dec 31 2007 2008 2009F 2010F 2011F
Sales ('m) 156.6 212.2 244.7 258.1 288.3Pre-tax ('m) 11.2 12.0 14.5 17.4 19.7Net profit ('m) 7.3 7.8 10.6 12.7 14.2EPS (sen) 3.2 3.3 4.5 5.4 6.1EPS growth (%) 88.4 2.3 36.6 19.7 12.0PER (x) 15.3 15.0 11.0 9.2 8.2EV/EBITDA (x) 4.0 3.1 3.1 2.3 1.7Yield (%) 0.5 2.0 1.8 2.2 2.4
 
BreadTalk Group 16 November 2009
 
2
Figure 1: Earnings Summary:
YE Dec (S$m) 3Q09 3Q08 YoY% 2Q09 QoQ%Turnover
64.11 54.6617.3
 56.98
12.5
 
By business segments:
Bakery sales 
28.36 23.91 18.6
25.24
12.4
Franchise revenue 
4.72 3.60 31.0
5.18
(9.0)
Restaurant sales 
10.10 7.98 26.5
8.79
14.8
Food Court sales 
20.93 19.16 9.2
17.77
17.8
By geography:
Singapore 
31.81 27.94 13.9
26.90
18.3
PRC 
20.82 18.09 15.1
19.19
8.5
Hong Kong 
7.83 5.32 47.3
7.19
8.9
Others 
3.64 3.31 10.0
3.71
(1.9)
Gross profit
34.96 29.72 17.7
31.97
9.4
Gross margin
54.5 54.4 
0.17ppt
56.1
(1.6)ppt
Operating costs
32.41 29.36 10.4
30.33
6.9
Operating profit
4.32 1.97 119.3
4.55
(5.2)
Operating margin
6.7 3.6 
3.1ppt
8.0 
(1.3)ppt
Associates income (korea, Japan 30% stake each)
- (0.05) nm
-
nm
PBT
4.18 1.76 137.1
4.54
(7.9)
Tax
(1.32) (1.04) 27.7
1.19
10.7
Effective tax rate
31.63 58.71
(27.0)ppt
26.29
5.3ppt
Minority
NPAT
2.68 0.77 248.3
3.35
(20.1)
Net margin
4.2 1.42.8ppt
5.9
(1.7)ppt
Source: Company data 
Figure 2: Operating profits (S$m)
3Q09 3Q08 yoy % 2Q09 qoq% Remarks
Bakery/Franchise
1.8 -0.4 nm 2.0 -10.0Higher revenue from outlet and franchised operations.Lower raw material costs and improved operating efficiency.The larger factory in the PRC has commenced operation in 3Q09.Smaller operating losses from the Hong Kong and Malaysia bakeryoperations.
Restaurants
0.9 0.4 125.0 1.1 -18.2Pre-opening cost of the new Ramenbusiness of $0.4m. Carl's Junior opened its first outlet in Shanghaiin September 2009.
Food Republic
1.5 1.7 -11.8 1.5 0.0Decline in operating earnings yoy was due to underperformanceof the PRC food court operations, which was affected by thetemporary closure of its largest food court in Beijing. The Beijingfood court will be upgraded and re-opened by year end.The Hong Kong food court operations have turned around, whileSingapore food court operations recorded higher operating profit.
Source: Company data 
 
BreadTalk Group 16 November 2009
 
3
Figure 3: Sum of the parts valuation
S$ m S$ (per share)
Estimated net profit from China segment FY10F 7.6 0.03(Assume: 60% of net profit)Market value of China segment on PER of 15x 114.1 0.49Estimated net profit from Spore and Rest of World segment FY10F 5.1 0.02(Assume: 40% of net profit)Market value of Spore & Rest of World segment on PER of 9x 45.7 0.19Total value of business 159.8 0.68Net cash as at Sep 09 41.2 0.18
SOTP fair value 201.0 0.86
Source: Kim Eng estimates 
Figure 4: BreadTalk’ F&B Network
BreadTalk - Owned Sep 08 June 09 Sep 09 Additions (YoY)
Singapore 41 43 49 8Malaysia 9 12 12 3Hong Kong 5 7 7 2PRC 32 40 40 8Thailand 3 3 4 1Total 90 105 112 32
Food Court
PRC 22 22 22 0Hong Kong 4 5 5 1Singapore 3 3 4 1Malaysia 1 1 1 0Total 30 31 32 2
Restaurant
Singapore 6 6 6 0Total 6 6 6 0
BreadTalk – Franchised
Indonesia 45 51 55 10Philippines 14 15 16 2Kuwait 7 7 6 -1UAE 4 0 0 -4Oman 0 1 1 1India 7 6 6 -1Korea 1 2 3 2PRC 53 71 74 21Bahrain 0 1 1 1Total 131 154 162 31
Source: Company data 

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