• 2Q15 results met ~23% of FY15F
• Closed two food atria in Mainland China
• Valuations still unattractive

2Q15 results in-line

BreadTalk’s 2Q15 results came in within expectations. Driven by growth in sales for all segments (Bakery, Food Atrium, Restaurant), revenue was up 10.7% YoY to S$154.9m, making 23.5% of our FY15F and PATMI was 10% higher at S$2.9m, constituting 23.1% of our fullyear estimate. There were one-time write offs of ~S$2m from closure of non-performing outlets in this quarter and 2Q14. If we strip these out, estimated PATMI growth would have been lower.

We note that rental expenses rose 31.1% to S$37.3m, and labour costs continued to increase by 8.8% to S$40.6m. Notably, margins managed to maintain a largely similar picture, with gross profit margin a tad lower by 0.2ppt to 52.7%, EBITDA margin up 0.1ppt to 11.6% and EBIT margin up 0.2ppt at 3.4%. An interim dividend of 0.5 S-cents was also declared, consistent with last year’s.

China remains the weak spot

The group’s Food Atrium division’s revenue grew 7.3% YoY on the back of same store sales performance at their Hong Kong outlets, as well as improvements in revenue for their Taiwan and Thailand operations. However, management cited the slowdown in China translating to persistent operating challenges, such as weaker footfalls in the shopping malls where they operate.

Two outlets were closed in China and a resulting one-time write off led to a 24.3% decline for 1H15 EBITDA with EBITDA margin at 11.7% vs. 1H14: 16.7%. Under Bakery, management also stated plans to improve underperformers from its Toast Box concept in China.

Restaurant segment boosted by ramp up in Thailand

Revenue for the restaurant segment rose 10.6%, underpinned by consistent performance of their Din Tai Fung (DTF) operations in Singapore, as well as increased revenue contribution by two DTF outlets in Thailand. We note that the latter would be the growth driver, given that the group is able to only operate DTF in Singapore and Thailand.

Estimates and rating unchanged

We think valuations are still unattractive as the stock is currently trading at 27.5x FY15/16F PER, thus we are keeping our SELL rating with a fair value estimate of S$1.14.

Source: OCBC Research - 6 Aug 2015