Will BreadTalk rise again?

Will BreadTalk rise again?

Gwyneth Yeo
05/08/16, 10:58 am

SINGAPORE (Aug 5): RHB is maintaining its “buy” recommendation for BreadTalk Group with a target price of $1.45, despite store closures and the challenging operating environment in 2Q16.

According to RHB analyst Juliana Cai, BreadTalk’s management says the rationalistion exercise for its food atrium division has largely been completed. The group had closed its Tianjin and Chengdu food courts during the quarter to June. The rationalisation exercise is expected to be completed by 2H2016.

In Singapore, the group’s food court at Ion Orchard completed its renovation works in May, and is expected to report a full quarter’s contribution to the food atrium segment. As such, Cai expects the group to perform better in 2H16 due to the fewer write-offs from store closures, even as sales remain weak in China.

Cai also noted that the improved supply chain management has led to higher operating margins for BreadTalk’s bakery division, with ebitda for its bakeries segment catching up with that of Toast Box.

“With the mid-Autumn and Christmas festivities in the latter half of the year, we expect the margins expansion to continue into 2HFY2016,” she adds.

For the restaurant segment, which continues to be driven by its Din Tai Fung brand, Cai expects revenue growth to come from its new outlets in Singapore and Bangkok.

“We expect the food atrium division to remain a drag on BreadTalk’s full-year results on the back of a difficult operating environment and write-offs from its streamlining process. However, this should be partially mitigated by margins expansion at its bakery and restaurant businesses. We also think that 2H16 should begin to see some improvements. This is because the bulk of its store closures have been completed,” says Cai.

Shares of BreadTalk are trading 4.6% lower at $1.05.

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