SINGAPORE (May 14): DBS Group Research is maintaining Breadtalk Group at “hold” with 92 cents target as outlook for the group continues to be mixed.
Breadtalk’s 4orth division posted startup losses while new restaurants remain a drag on operating profit. Revenue from its bakery in China has also yet improve.
Looking ahead, higher startup costs are expected for its second Din Tai Fung in London.
“There are more Song Fa Bak Kut Teh outlets planned for Shanghai, Beijing, Shenzhen, Guangzhou and Thailand which will add to startup costs,” says Alfie Yeo in a recent report.
In 1Q19, BreadTalk reported earnings of $1.3 million, up 11.5% from a year ago and in line DBS forecast.
Revenue grew 6.1% y-o-y to $158 million while operating profit came in at $9 million.
Bakery had posted revenue growth of 2% to $72 million.
But Yeo says growth came from the consolidation of Thailand’s bakeries after Breadtalk acquired the remaining 50% stake in BTM (Thailand) from Minor Food Group which resulted in consolidation of BTM’s revenues into Breadtalk’s topline.
Excluding the consolidation, revenue would have fallen 5.7%, dragged down by China stores including franchised stores.
Sale from 4orth division doubled to $5.5 million but operating losses widened to $2 million.
So Ramen contributed positively to net profit but this was offset by startup costs of new outlets.
Foodcourt sales rose 3% to $38.6 million.
Restaurant sales grew 10% to $40.5 million due to full quarter contribution from Din Tai Fung London and CentralPlaza Pinklao in Bangkok but operating profit declined 43% to $4.3 million due to startup costs.
“Maintain ‘hold’ at this juncture and we look to revisit our recommendation when the drag on operating profit lessens,” says Yeo.
As at 3.38pm, shares in Breadtalk are trading at 80 cents.
