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SINGAPORE (July 15): Daiwa is maintaining its “outperform” rating on Breadtalk Group, with a target price of $1.28 on the back of the group’s plans to improve profitability per store via tighter cost controls and store rationalisation.
In the bakery segment, the research house expects a sustained recovery in profitability for the group in 2016E. This comes as the group registered a 10.6% y-o-y increase in EBITDA in 1Q16, attributed to tighter cost control and a reduced focus on outlet expansion, says Daiwa analyst Shane Goh.
In the restaurant segment, the research house expects positive same-store-sales growth for Din Tai Fung outlets and a recovery in Ramen Play stores to drive earnings growth for the group.
In fact, the six existing Ramen Play outlets had registered revenue growth following the closure of underperforming outlets and a re-branding exercise to reposition the brand as a casual dining family-oriented concept.
The group is also committed to expansion in the self-operated outlets segment. However, the group also plans to shutter underperforming food courts in China due to prevailing challenges in the operating environment. This follows the closure of three outlets in China in 2015 and 5 in 1Q16.
Further closures of Ramen Play restaurants, if any, would only occur at the end of each outlet’s lease cycle, which typically lasts for 2 to 3 years.
Moving forward, the group currently does not have further capital-raising plans following a $75 million bond issuance in March 2016. However, the group remains open to selling its stakes in property investments such as AXA Tower and Chijmes if presented with an attractive offer, says Goh.
At 11.18pm, Breadtalk shares were down 0.4% at $1.14.