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Wednesday, January 29, 2014

Maybank initiates coverage of BreadTalk with $1.40 target


Excerpts from analysts' reports

Maybank initiates coverage of BreadTalk with $1.40 target

Analyst: James Koh & Juliana Cai

breadtalk_maybank1.14Source: Maybank Kim EngInitiate BUY on this under-researched company with a TP of SGD1.40, implying 50% upside. BreadTalk is by far the most successful Singapore F&B company, boasting a solid regional presence for its homemade brands via more than 800 outlets across 15 countries. Its target for 2014 is to raise store count to 1,000.
Operational statistics are healthy with EBITDA growing rapidly. This should allay fears on BreadTalk’s lacklustre profit growth, hitherto blamed on poor management or a flawed business model though our analysis shows it is a matter of accounting. 

Going forward, higher-margin businesses should also help lift earnings. 
Thailand-based Minor International’s 11% stake may be a prelude to a takeover offer in the next 12-24 months. If so, this would be a bonus for investors.
China presence an attractive trait. Minor International (MINT TB, BUY, TP 24.30THB) has accumulated an 11% stake in BreadTalk Group since Aug 2013. 

The Thai hospitality and F&B group is noted for its history of acquisitions but reputation aside, we think its portfolio complements that of BreadTalk’s. We believe BreadTalk’s presence in China –more than 300 outlets in 48 cities – is definitely a key attraction.

Value emerging, act before it’s too late. We see value emerging. 

Our TP of SGD1.40 is based on 7X FY14E EV/EBITDA, which is only half of regional peers’ average. We expect BreadTalk’s net profit to grow at 26% CAGR over the next three years as expansion efforts start to bear fruit. 

Using a SOTP approach to cross-check the replacement value of the firm, we coincidentally arrive at a conservative net value of SGD1.40 per share (SGD403m). Initiate with BUY. 

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