• Slowdown in growth pace
• Weaker demand across all markets
• Valuations remain stretched

FY14 earnings down 10.3%

With a typically back-loaded set of results, BreadTalk‟s disappointing last quarter took a toll on the group‟s full year results. Citing weakerthan-expected sales across its markets, especially in Mainland China, FY14 revenue was up just 9.9% to S$589.6m as compared to an average growth rate of ~20% over the past five years. Although the group saw higher „other income‟ growth of 48.6% to S$17.5m, consisting of a gain on sale of assets to the new JV in Thailand and increase in management fee income from food court operations, the group faced greater expenses as well, resulting in a 10.3% decline in PATMI to S$12.2m. A final DPS of 1 S-cents was declared, bringing total DPS to 1.5 S-cents/share, which is lower than FY13 DPS of 1.8 S-cents.

Mixed bag of performance across segments

With 80 stores added to reach a current total of 817 Bakery outlets, the group‟s Bakery division gained 8.4% in revenue while PATMI fell 36.9%, mainly attributable to higher rental and labour costs amid the gestation period. Din Tai Fung (DTF) in Singapore continued to drive the Restaurant division‟s revenue up by 12.5% while PATMI only had a marginal change due to operating losses incurred from its Ramen Play business that had six stores closed in 2014. As the group only holds franchise agreement to open DTF in Singapore and Thailand, we could see a similar showing going forward, as opportunities for store openings become limited. We think there is better potential for its Food Atrium division, which grew 15.2% in revenue and 12.9% in PATMI on the back of its stores in Hong Kong and Singapore. Food atrium outlets increased from 58 to 63 as of Dec-14.

Maintain SELL

Following a change in analyst coverage, we have revised our estimates based on a softer outlook, and derived a new fair value estimate of S$1.02 (previous S$1.12), pegged to an updated target PER of 23x FY15F EPS (near 1 s.d. above its fiveyear average PER). Current valuations look stretched with the counter trading at 35.1x FY14 PER, thus we maintain SELL.

Source: OCBC Research - 23 Feb 2015