20140127-Maybank_KERPL-BREADTALK_GROUP__BREAD.SP_WHY_THIS_BREAD_WON_T_TALK_29页_1mb

Summary of BreadTalk Group (BREAD SP)

Core Content

BreadTalk Group is a Singapore-based food and beverage (F&B) company that has grown significantly since its founding in 2000 by George Quek. It has expanded to more than 800 outlets across 15 countries and the Middle East, making it one of the most successful F&B companies in the region. The company is known for its creativity in brand development and has pioneered the artisan bread retail concept.

Main Points

• Strong Regional Presence: BreadTalk operates in 15 countries and the Middle East, with over 300 outlets in China alone. Its presence in China is particularly notable given the challenging retail environment.
• Diverse Brand Portfolio: The company has developed multiple in-house brands, including BreadTalk, Toast Box, RamenPlay, and Food Republic. These brands have been successful in different markets, and the company has also acquired and operated other brands like Din Tai Fung.
• Operational Growth: BreadTalk has experienced rapid operational growth, with EBITDA increasing at a 15% CAGR from FY13E to FY16E. Its EBITDA growth is a better indicator of underlying profitability than net profit, which has lagged due to aggressive expansion and high depreciation and amortisation (D&A) costs.
• Valuation and Investment Outlook: The current share price is SGD0.94, with a target price of SGD1.40, implying a 50% upside. The EV/EBITDA ratio is 4.5x, which is considered undervalued compared to regional peers. The company's replacement value is estimated at SGD402.8m, translating to SGD1.40 per share.
• Potential for Takeover: Minor International (MINT), a Thai F&B company with an 11% stake in BreadTalk, has a history of acquisitions and may consider a takeover or a strategic alliance in the next 12-24 months.
• Healthy Cash Flow: BreadTalk generates consistent and healthy operating cash flow, indicating strong business viability and cash generation ability.
• Complementary Business Models: MINT and BreadTalk have complementary business portfolios, with MINT focusing on casual dining and fast food, while BreadTalk has a strong presence in bakeries and food courts. This synergy makes a potential partnership or acquisition highly attractive.
• Accounting Factors: The company's profit growth has been slower than revenue growth, largely due to aggressive expansion and high D&A costs, which are a result of short-term lease agreements in some markets, especially in China.

Key Information

• Share Price: SGD0.94
• Target Price: SGD1.40 (+50% upside)
• Market Capitalization: SGD263.6M
• Free Float: 35.4%
• Major Shareholders:
  • QUEK MENG TONG: 34%
  • LEE LIH LENG: 19%
  • Minor International PCL: 11%
• Revenue Growth (FY12A to FY16E):
  • FY12A: SGD447.3M
  • FY13A: SGD532.7M
  • FY14E: SGD629.8M
  • FY15E: SGD731.4M
  • FY16E: SGD860.6M
• EBITDA Growth (FY12A to FY16E):
  • FY12A: SGD49.6M
  • FY13A: SGD60.6M
  • FY14E: SGD70.4M
  • FY15E: SGD79.6M
  • FY16E: SGD91.0M
• Core Net Profit Growth (FY12A to FY16E):
  • FY12A: SGD12.0M
  • FY13A: SGD12.5M
  • FY14E: SGD15.6M
  • FY15E: SGD19.1M
  • FY16E: SGD25.1M
• Core FD EPS Growth (FY12A to FY16E):
  • FY12A: 4.3 cts
  • FY13A: 4.4 cts
  • FY14E: 5.5 cts
  • FY15E: 6.8 cts
  • FY16E: 8.9 cts
• Net Dividend Yield (FY12A to FY16E):
  • FY12A: 1.4%
  • FY13A: 1.5%
  • FY14E: 1.8%
  • FY15E: 2.2%
  • FY16E: 2.8%
• ROAE and ROAA (FY12A to FY16E):
  • FY12A: 13.6%
  • FY13A: 13.0%
  • FY14E: 14.5%
  • FY15E: 15.7%
  • FY16E: 18.0%
• Replacement Value of Stores: SGD245M
• Total Replacement Value of the Company: SGD402.8M
• Per Share Value: SGD1.40

Strategic Outlook

• Future Expansion: BreadTalk aims to increase its store count to 1,000 by 2014 and continues to expand in China and other emerging markets.
• Franchise Model: The company uses the franchise model to expand its presence globally, which helps to reduce financial strain and increase market penetration.
• Innovation and Branding: BreadTalk has consistently innovated, launching new brands and evolving its concepts. It has won several international and local branding awards.
• Economies of Scale: The company's new international headquarters in Singapore is expected to help it achieve economies of scale and improve operational efficiency.
• Investor Recommendations: Maybank recommends a "BUY" rating with a target price of SGD1.40, based on its analysis of the company's value and growth potential.

Conclusion

BreadTalk Group is a rapidly expanding F&B company with a strong regional footprint and a diverse brand portfolio. Its operational performance and cash flow are healthy, and its current valuation is considered undervalued. The potential for a takeover or strategic alliance with Minor International presents an added opportunity for investors. With a solid business model and a history of innovation, BreadTalk is well-positioned for future growth.