SINGAPORE (Feb 24): RHB is maintaining its “buy” call on BreadTalk with a higher target price of $1.50, as it witnesses a turnaround in the group’s core business after its FY16 margins beat expectations.
To recap, the food and beverage (F&B) group on Wednesday posted a 50.4% rise in FY16 earnings to $11.4 million on a rise on higher income, in addition to a steeper decline in cost of sales as compared to the previous year.
(See also: BreadTalk posts 50.4% rise in FY16 earnings to $11.4 mil)
In a Friday report, analyst Juliana Cai says she expects BreadTalk’s bakery segment to continue to deliver as it consolidates its franchisee network, given how its margins for FY16 beat the research house’s expectations.
“In FY17F, management would focus on reconfiguring its bakery franchisees to optimise profitability. This would involve replacing weaker franchisees with stronger operators. With that, we expect to see better contributions from its bakery franchisees in the medium term,” Cai explains.
“We believe it is in the group’s strategy to unlock the value of its real estate investments to better deploy cash for future M&As. Any further divestment would be a key catalyst to share price,” she adds.
After having recently divested its investment in Katong 112 and TripleOne Somerset, the group still holds other property investments including in CHIJMES and Beijing Tongzhou Integrated Development – which Cai estimates to be worth about $127 million, translating to 34 cents per share.
(See also: Perennial-led consortium divests 70% stake in TripleOne Somerset)
As at 10.40am, shares of BreadTalk are trading 1 cent lower at $1.30.
