SINGAPORE (May 4): RHB is maintaining its “buy” call on Breadtalk Group with a higher target price of $1.60 on margins improvements for all three of its business and a special dividend.
In its 1Q results last night, Breadtalk announced it would be paying out a special dividend of 2 cents or 60% of the $9.3 million divestment gain from the sale of its TripleOne Somerset investment. The stock will go ex-dividend on June 19.
(See also: Breadtalk 1Q earnings more than quadruple to $10.7 mil; declares special dividend of 2 cents per share)
Analyst Juliana Cai says future divestment of its property investments including AXA Tower, CHJIMES and the Beijing Tongzhou Integrated development, could be a key catalyst for its stock price.
Breadtalk also announced a strong 1Q17 result, registering a positive PATMI of $1.4 million excluding the exceptional gain, a turnaround from 1Q16 loss of $5.4 million.
Breadtalk’s restaurant segment had exceeded Cai’s expectations as operating margins grew 2.6 ppts due to narrowing losses from Ramen Play while Din Tai Fung continued to rake in incremental revenue from its three new outlets opened last year.
Its food atrium business continued its positive momentum in 1Q17 following the turnaround last quarter. Its atriums faced record low vacancy rates after the closure of non-performing food atriums last year. Cai, however, foresees more room for margin improvements at its Singapore and China operations as sales for stallholders improve.
The group’s bakery segment also witnessed higher operating margins on lower depreciation expenses after the closure of eight franchise stores in 1Q17. This year, the group has plans to consolidate its franchisees.
“We expect an expansion in its franchised bakeries in 2H17 to replace closed stores. We believe a consolidation of the franchise would lead to faster growth and further margin expansion from 2018F onwards” says Cai.
Shares of BreadTalk are up 9 cents higher at $1.48.
