Following the major rationalisation exercise over the last three years, margins at the various segments are now intact. In 3Q, BreadTalk’s 3Q17 PATMI came in slightly ahead of the house’s expectations at $3.7 million.
“We believe the group is now ready to expand and grow its revenue. We upgrade our recommendation to “buy”: with unchanged target price of $1.83, pegged to core EV/EBITDA of 6x,” says analyst Juliana Cai in a Monday report.
Cai says BreadTalk’s Food Atrium segment is the rising star as it continues to deliver better results y-o-y. The Restaurant segment also showed improvement in sales as well as at the EBITDA level on the back of better cost management despite no new store openings.
During 9M17, the Bakery segment streamlined its underperforming franchisees, and searched for stronger franchisee operators. This has resulted in lower contribution from this segment.
In September, the group sold its Malaysian Bakery assets to a joint venture with United Malayan Land – one of the top 10 developers in Malaysia. BreadTalk would hold 25% share in the JV.
Given that UMLand has retail components in several of its property developments, Cai believes future bakeries would open in tandem with UMLand’s new developments.
This could be a positive move as BreadTalk’s Thailand Bakery business delivered even stronger contributions after selling its stake to a JV with Minor Group.
The group has also formed a new division, dubbed 4orth Division, aimed at finding new F&B concepts and BreadTalk would collaborate to bring its brands to the regional level.
So far, the division has formed a JV with Song Fa Holdings to bring Bak Kut Teh brand to China and Thailand. The first Song Fa Bak Ku The in Shanghai is slated to open in 2018.
Shares in BreadTalk are down 4 cents at $1.57 or roughly 22 times FY17 earnings.
