SINGAPORE (Nov 7): RHB Research is maintaining its “sell” call on BreadTalk Group with a lower target price of 75 cents from $1 previously, after cutting FY18-20 forward earnings estimates by about 30% per annum to factor in the gestation of new businesses as well as higher interest costs.

The research house has also lowered its target EV/EBITDA for BreadTalk’s core business to 5.5 times from 7 times previously in its sum-of-parts valuation to account for a slower growth in EBITDA.

In a Wednesday report, analyst Juliana Cai says she sees BreadTalk’s share price as currently overvalued, considering how the stock trades at 39 times FY19F P/E ex-property investments value compared to its peers, which are trading at an average of 20 times.

While BreadTalk recently issued $100 million in 4% medium-term notes earlier this year in anticipation of capex requirements with plans for a China central production facility underway, Cai opines that the group’s new businesses will need some time to mature before it can absorb rising interest costs.  

In view of muted topline growth evident in the group’s recent set of 3Q18 financial results, she thinks the soft revenue trend should continue until 4Q19 before the group’s number of stores normalise while sales from its new F&B concepts pick up.

“Higher interest expense and poorer performances from JV and associates dragged down overall earnings. We believe the stock is overvalued as the group would need more time for the new stores to ramp up,” says Cai.

As at 2:58pm, shares in BreadTalk are trading 1.62% lower at 91 cents or 3.7 times Dec 18F book value.