BreadTalk seen less appetising after a weak 3Q; RHB slashes earnings estimates

BreadTalk seen less appetising after a weak 3Q; RHB slashes earnings estimates

Michelle Zhu
07/11/18, 03:04 pm

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.

Singapore posts 3.8% growth in first quarter as risks abound

(May 21): Singapore’s economy grew at a faster pace in the first quarter than the government previously estimated, a sign of the city state’s resilience in the face of weaker global demand and a worsening US-China trade war. Gross domestic product rose an annualised 3.8% from the prior quarter, higher than the government’s earlier projection of 2% and above the median forecast of 2.3% in a Bloomberg survey of economists. Compared to a year ago, GDP rose 1.2%. Key Insights Exports in the trade-reliant economy have been hit by a downturn in the global tech cycle and more subdued gro....

Nike, Adidas, call tariffs 'catastrophic' in open letter to Trump

NEW YORK (May 21): Nike Inc., Adidas AG and other footwear giants urged President Donald Trump to reconsider his tariffs on shoes made in China, saying the policy would be “catastrophic for our consumers, our companies and the American economy as a whole.” In all, 173 companies signed an open letter to the president, dated Monday and posted on the industry trade association’s website. It was also sent to Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross and National Economic Council director Larry Kudlow. “On behalf of our hundreds of millions of footwear consumers....

Treasure hunting

British collector and expert Harry Fane talks about what it takes to be the world’s foremost authority on vintage Cartier creations and how to spot a good investment buy at his Vintage Cartier Tank watch exhibition at Dover Street Market Singapore (May 20): Harry Fane’s love affair with Cartier began at the tender age of 17. It was the 1970s and his best friend showed up one day, decked out in two must-have items of the era: a pair of Gucci shoes with a gold buckle — “the height of fashion at the time” — and a Cartier watch. “I remember going, ‘Gosh, I really want both of....