SINGAPORE (Jan 26): RHB Research is keeping its “buy” call on BreadTalk Group and raising its target price to $2.09, from $1.83 previously.
“BreadTalk has been one of our favourite consumer stocks. Its share price has appreciated by 53% over the past two years,” says analyst Juliana Cai in a Friday report. “[However,] even at this price, we think the core business is undervalued.”
On the investment properties front, Cai estimates that BreadTalk’s existing investments in non-core real estates – Chijmes and AXA tower in Singapore as well as Beijing Tongzhou District Phase 1 (BJTZ1) and Beijing Tongzhou District Phase 2 (BJTZ2) in China – are easily worth close to 30% of its market cap, based on independent valuations.
“The investments in real estate have allowed BreadTalk to ride on the appreciation of property values,” she says. “The group has also consistently rewarded shareholders by paying out 45-60% of the divestment gains as special dividends.”
Stripping out some $143 million worth of investment properties, Cai estimates that BreadTalk’s current trading price implies that its core food and beverage (F&B) business is only trading at FY18F EV/EBITDA of 3.8x, or FY18F P/E of 17.9x.
Cai notes that this is at a discount compared to its peer average EV/EBITDA of 15.2x and P/E of 25.6x.
“We certainly think that its core F&B business is worth a rerating – given the stronger fundamentals after the change in management, and the major overhaul that has taken place over the past years to turn all three business segments around,” Cai says.
“Moving ahead, we think the group’s core F&B business may chart a stronger performance through franchisee network expansion – which requires lower capex and produces higher margins,” Cai adds.
See: BreadTalk and Song Fa to open first bak kut teh restaurant in Shanghai Jing An Kerry Centre
In addition, Cai expects BreadTalk to open more Din Tai Fung restaurants in Thailand this year.
As at 3.32pm, shares of BreadTalk are trading flat at $1.72, implying an estimated price-to-earnings ratio of 25.2 times, EV/EBITDA of 4.6 times, and a dividend yield of 2.7% for FY18.
