1Q14 results were within expectations, though seasonally weakest historically. Net profit attributable up 11.6% YoY.

Our discussions with management boost our confidence that there are multiple avenues for growth.

With solid growth plans ahead, we take our TP higher to SGD1.95, based on 8x FY14E EV/EBITDA. Reiterate BUY.

Seasonally weaker results

BreadTalk reported 1Q14 core PATMI of SGD1.8m (+11.6% YoY), which accounted for 12% of our full-year forecast. We consider the results to be in line as first quarter is seasonally the weakest. Revenue grew 16.7% YoY, led by all three business divisions. Operating margins weakened 3.2ppts QoQ and was unchanged YoY at 2.9% due to higher operating leases and personnel expenses.

The food atrium segment was the star performer, recording a multi-fold YoY improvement in bottom line, while profit at bakeries declined 6.5% YoY on higher labour costs in Singapore and gestation of new concepts. Rising operating costs in Singapore is a risk, but we believe the company has sufficient pricing power and scale to ride this out.

Multiple avenues for growth

Following our latest discussions with management, we believe there are multiple avenues of growth for BreadTalk, especially in China. Its solid growth plans convince us that the stock’s significant discount to peers should narrow and we now use 8x FY14E EV/EBITDA (previously 7x) to derive a new TP of SGD1.95 (previously SGD1.54). We trim our FY14E-16E earnings by 2-3%. Given their respective portfolios, we think a partnership with shareholder MINT International in China and Thailand will be mutually beneficial. Other catalysts could include winning new Din Tai Fung franchises. Reiterate BUY.  

Source: Maybank Kim Eng Research - 9 May 2014