Share Price: SGD0.91
Target Price: SGD1.40(+55%)
52w high/low (SGD)1.17/0.74
Baking for a bright future
BreadTalk is by far the most successful Singapore-based F&B company, having taken homemade brands into the region. It now boasts more than 800 outlets across 15 countries, with an ambitious target to take this number to 1,000 in 2014.
Operational statistics are healthy with EBITDA growing rapidly. This should allay fears on BreadTalk’s lacklustre profit growth, hitherto blamed on poor management or a flawed business model though our analysis shows it is a matter of accounting. Going forward, higher-margin businesses should also help lift earnings.
Thailand-based Minor International’s 11% stake may be a prelude to a takeover offer in the next 12-24 months. If so, this would be a bonus for investors.
China presence an attractive trait
Minor International (MINT TB, BUY, TP THB24.30) has accumulated an 11% stake in BreadTalk Group since Aug 2013. The Thai hospitality and F&B group is noted for its history of acquisitions but reputation aside, we think its portfolio complements that of BreadTalk’s. We believe BreadTalk’s presence in China –more than 300 outlets in 48 cities – is definitely a key attraction.
Value emerging, act before it’s too late
We see value emerging. Our TP of SGD1.40 is based on 7x FY14E EV/EBITDA, which is only half of the regional average. We expect BreadTalk’s net profit to grow at 26% CAGR over the next three years as expansion efforts start to bear fruit. Using a SOTP approach to cross-check the replacement value of the firm, we also arrive at a conservative net value of SGD1.40 per share (SGD403m). Maintain BUY.