8) BreadTalk Group – FY09 Results (Pauline Lee 64321453)
Previous day closing price: $0.705
Recommendation: BUY (maintained)
Target price: $1 (maintained)
BreadTalk has out-performed our bullish expectations despite the global recession. Net profit grew by 43%, ahead of our expectations despite higher start up costs and temporary closure of its largest food court in Beijing. We see sustainable growth momentum as the group reaps economies of scale from its growing F&B network and brand offerings. The group is proposing a bonus issue to its shareholders on the basis of 1 bonus share for every 5 existing ordinary shares. Maintain BUY and TP of $1.00.
Sweet surprises
Breadtalk’s net profit grew by 43% yoy to $11m in FY09 amidst the recession and high start-up costs. Earnings were slightly ahead of our expectations due to strong turnover across its bakery outlets, restaurants and food courts. The group is proposing a bonus issue to its shareholders on the basis of 1 bonus share for every 5 existing ordinary shares.
Improving operating efficiencies should negate start-up costs
Earnings were affected by the temporary closure of large food court in Beijing for renovation, lower franchise fees, as well as start-up costs at Carls Junior and Ramen Play. The start-up costs appear to be well-managed reflected in the improvement in operating margins from 6.2% to 6.6%. We believe profitability will continue to improve as the group reaps economies of scale from its growing F&B network and brand offerings.
Strategically located new stores to contribute from 2H10
Contributions from its 2 new brands – Carls Junior and Ramen Play, should kick in by 2H10. Its first Carls Junior outlet in Shanghai is doing well, and is on track to open 4-5 more stores this year. Similarly, its first Ramen Play outlet at ION Orchard, has already reached optimal sales within the first 2 months of operations, and is one of the best performing F&B outlets in the shopping mall. The group stays focus to expand its F&B network at high-traffic locations in Asia including the Singapore IRs.
You can have the cake and eat it too!
Thanks to improving operating efficiencies and on-going expansion, the group has been achieving double-digit revenue growth for 9 consecutive years. Despite heavy start-up costs amid expansion, its profitability has been improving at 4-year earnings CAGR of 33%. In addition to the earnings stability and lucrative cash flows, the stock offers a good exposure to fast-growing markets like China. Maintain BUY on a target price of $1.
Year End