Breadtalk

Breadtalk registered 3Q13 results which was largely in line, with net profit of $3.39 (+0.1% y/y, +12% q/q) and revenue coming in at $142.6m (+22% y/y, +13% q/q), taking 9M13 earnings to $8.0m (+3%). Despite the strong revenue, the group’s earnings was weighed largely by a 14% rise in distribution and selling expenses to $52m and a 33% rise in admin expenses to $18.5m, while tax provisions rose 90% to $2.3m which further eroded bottom-line. Top-line was buoyed by the group’s Food Atrium division which posted sales growth of 29% and net profit improvement of more than 8 times, led by a turnaround in its Singapore operations, while its food atriums in Mainland China and Hong Kong continued to register strong profit contributions. The Group’s Bakery division, which recorded a 15% rise in revenue across all markets, saw an increase of 96% in net profit, boosted by its Mainland China, Hong Kong and Thailand operations. Its Singapore operations however experienced a decline in earnings due to ongoing labor crunch and rising rental expenses. Revenue from its Restaurants Division grew 17% but net profit decreased by 41% due mainly to an impairment loss on property and equipment recognized in the previous quarter, in relation to the restructuring of Carl’s Junior. Din Tai Fung Singapore and Thailand remains the division’s drivers of growth, while the repositioning of Ramen Play has yet to contribute meaningfully to the business. Going forward, Breadtalk notes that against the backdrop of an improving global economy, the group expects to continue driving growth and expansion in its key markets, but cautions on high cost pressures in food cost, labour, rental, and expansion cost. Barring any unforeseen circumstances, expects to be profitable in 4Q13. At the current price, Breadtalk trades at 23.8x annualized P/E, which does not appear excessive, in light of recent M&A transactions within the Asian F&B sector, which translates to an acquisition P/E of 30x, and in consideration of the high growth markets which the group operates in. Latest broker ratings as follow: OCBC maintains Sell with TP $0.77