• 1Q14 PATMI below expectation
• PATMI results mixed among segments
• Maintain SELL with new S$1.12 FV

1Q14 PATMI below expectation

In 1Q14, revenue grew 16.7% YoY S$140.4m while PATMI improved by 11.6% to S$1.8m. Revenue was in line as it made up 22.8% of our FY14 forecast, noting that 1Q is typically the weakest quarter. However, PATMI came in below expectation as it only made up 11.5% of our full-year forecast. Moreover, we note that BreadTalk’s other income increased by 124.1% YoY or S$1.9m to S$3.5m mainly due to receipts under the Singapore’s Wage Credit Scheme. If we were to strip away the increase in other income, we estimate 1Q14 PATMI to be S$1.1m, which would have seen a YoY decline instead. Revenue increase in all segments but

PATMI results mixed

Bakery division improved its revenue by 16.5% while PATMI dipped 6.5% due mainly to the gestation period of new concepts, higher labour costs in Singapore and adverse impact of the political unrest in Bangkok. Bakery outlets grew by 5 stores to 742, which is slower as compared to previous quarters. Food Atrium division grew 22.4% in revenue with 322.8% improvement in PATMI which was attributed to higher margins achieved from operations in Mainland China and Hong Kong. Food atrium outlets increased from 58 to 60 in 1Q14. Despite revenue growing by 12.2%, the group’s Restaurant division PATMI was flat due to restructuring of its Ramen Play business; stores were closed and the number of restaurants came off from 41 to 33.

Price has run ahead of fundamentals

As BreadTalk’s earnings are heavily back loaded (e.g. 66% of FY13 PATMI came from 2H13), we opt to keep our 15% growth forecast for FY14 intact for now. We think that fundamentally BreadTalk will still grow in the years ahead and thus value BreadTalk with a PER 1 s.d. above its two year historical average. We use an updated 20.1x PER and derive a new fair value estimate of S$1.12 (previous S$0.85). However, as price has run ahead of fundamentals, we maintain SELL. At the last closing of S$1.45, BreadTalk is trading at 26.0x FY14F PER which seems expensive.

Source: OCBC Research - 12 May 2014