CFA Society Singapore
SINGAPORE (April 4): DBS Vickers Securities is reinstating coverage on BreadTalk Group with a “buy” recommendation and a target price of $1.69 following the counter’s turnaround in 2H16 earnings, on the notion that its earnings recovery momentum will spill over to FY17F to lift margins and improve earnings quality.
In a report on Tuesday, analysts Alfie Yeo and Andy Sim say they believe BreadTalk is well-positioned to capitalise on growing food consumption trends in Asia, as well as more opportunities to expand in China.
More importantly, they reckon the group is poised for earnings growth this year after “dismal performances” in FY15 and 1H16, particularly on the recovery of its food court business segment through outlet rationalisation in China.
“All three business segments are now better positioned for earnings growth. We forecast core earnings CAGR of 63% for FY16-FY18F on the back of earnings recovery and a low base. Turnaround of its foodcourt business in China, better bakery cost efficiencies, and outlet expansion of high margin Din Tai Fung restaurants will collectively drive earnings growth in the medium term,” assert the analysts.
Noting that BreadTalk’s current core earnings valuation is “compelling” at 18x FY17F PE, Yeo and Sim add that the valuation of the group’s property investments based on the current market value also implies an upside of 3% over their book value, with 43 cents per share worth of investment properties.
“BreadTalk has a track record of monetising its property investments (111 Somerset and 112 Katong). Successful sale of property investments above market valuation is a possible share price catalyst,” conclude the analysts.
As at 1:31pm, shares in BreadTalk are trading 3.3% higher at $1.40.