Breadtalk Research Paper

Singapore | Food & Staples Retailing

Asia Pacific Equity Research

BREADTALK GROUP | HOLD

MARKET CAP: USD 125M AVG DAILY TURNOVER: USD 0.1M 13 Aug 2012 Company Update

CHALLENGING ENVIRONMENT AHEAD

• 1H12 results within expectations • Weaknesses in retail sales for China, SG expected • Maintain HOLD at lower FV

1H12 results within expectations BreadTalk Group’s (BTG) 2Q12 results did not disappoint. It reported a 21.8% YoY increase in revenue to S$104.8m on the back of strong growth in its restaurant segment and a corresponding PATMI increase of 9.2% YoY to S$3.0m. In terms of its 1H12 performance, BTG’s results were well-within our expectations with a top-line growth of 24.6% YoY to S$210.9m and a bottom-line increase of 22% YoY to S$4.5m, which formed 50% and 37% of our FY12 estimates. BTG also announced a 0.5 S cents interim dividend for the first time in its history. Restaurant segment key surprise As previously envisioned, the general pullback in retail sales did have some impact on BTG’s bakery and food court segments as both experienced drop-offs in growth rates. Increases in wage costs in China and Singapore as well as refurbishments for its food courts in Wisma Astria and China also weighed down contributions. However, the restaurant segment proved to be an exception with its Din Tai Fung (DTF) restaurants in Singapore and Thailand remaining popular amongst consumers as encouraging growth in its new outlets in Marina Bay Sands, NEX etc and Thailand helped to offset unprofitable performances in its Ramen Play and Carl’s Junior (China) business. Challenging environment ahead Aside from the anticipated increase in raw material costs in 2H12, BTG is also likely to face continued slowdowns in retail sales in both of its key markets of China and Singapore, which account for approximately 30% and 50% of its top-line currently. Although retails sales in both countries are still up on a YoY basis, decreasing confidence in the global economy and...