BreadTalk

BreadTalk: 2Q13 results came in below expectations despite revenue increasing 20.7% YoY to $126.5m. Higher operating expenses (+19.5% YoY to S$66.1m) – related in part to an ongoing restructuring exercise for its restaurant segment – caused operating profit to fall 15.1% YoY to $3.8m and operating profit margin to slide 1.2ppt to 3.0%. Net profit came in almost flat (+0.7% YoY) at $3.0m, missing estimates by about 10%, for a net margin of only 2.4% versus 2.9% a year ago. In light of its 1H13 performance, mgt declared an interim dividend of 0.5 cts, unchg yoy. Similar to the previous qtr, BreadTalk’s bakery and food court operations continue to show improvements across the various geographical locations. The main concern remains with the restaurant division, which saw sustained pressures related to the nonperforming Ramen Play restaurants and Carl’s Jr outlets in China, as repositioning efforts over the past two years have failed to improve the appeal of both restaurants. OCBC notes margin improvement for 2H13 is unlikely given the ongoing store expansion (60 stores added in 1H13). In addition, investors will have to contend with higher interest expenses related to the financing of its new HQ, and the possibility of additional restructuring expenses for its two nonperforming restaurant brands. The house reduces 2H13 earnings forecasts slightly and maintains SELL with TP $0.77.