Can Breadtalk Group Ltd Continue To Grow Into Its High Valuation?

Listed in 2003, Breadtalk Group Ltd (Breadtalk) has matured into a lifestyle F&B conglomerate with close to 1,000 retail outlets over 17 countries worldwide. As of 30 March 2019, Breadtalk is worth S$ 484.4 million in market capitalisation. I had just received its latest Annual Report and therefore, would like to bring you an update on its recent financial results, growth plans, and valuation figures. As such, here are 10 things to know about Breadtalk before you invest:

• Revenue Breakdown for 2018
  In 2018, Breadtalk has generated S$ 609.8 million in group revenue. Its breakdown of revenue is as follows:
  
  

No.	Segments	Revenue 2018 (S$ ‘000)	Revenue 2018 (%)
1	Bakery	282,004	46.2%
2	Food Atrium	156,895	25.7%
3	Restaurants	152,316	25.0%
4	4orth	14,173	2.3%
5	Others	4,408	0.8%
Breadtalk Group	609,796	100.0%

Source: Breadtalk’s Annual Reports

4orth is a new division of Breadtalk which holds Song Fa Bak Kut Teh & So (a Japanese noodle house) in its F&B portfolio.

4orth is a new division of Breadtalk which holds Song Fa Bak Kut Teh & So (a Japanese noodle house) in its F&B portfolio.

• Key Segment 1: Bakery
  (Brands: Breadtalk, Toastbox, Bread Society, the Icing Room & Thye Moh Chan)
  Revenues had dipped by 5.1% year-on-year to S$ 282.0 million in 2018 from S$ 297.0 million in 2017. It is the 3rd consecutive year where this segment recorded a decline in sales after a period of impressive rise in revenue from S$ 129.4 million in 2009 to S$ 307.9 million in 2015. This is due to closures of outlets in China which caused a sales decline from that market. Still, Breadtalk has 350 outlets in China – inclusive of Hong Kong of 22 outlets and thus, remains as the largest market to Breadtalk presently. Earnings before interests, tax, depreciation, and amortisation (EBITDA) had dipped 2.2% year-on-year to S$ 22.5 million in 2018, from S$ 23.0 million in 2017. Hence, it is a back-to-back decline in EBITDA to Breadtalk’s bakery segment.
  
  
  

• Key Segment 2: Food Atrium
  (Brands: Food Republic & Food Opera)
  Revenues have grown by 5.1% year-on-year to S$ 156.9 million in 2018 from S$ 149.3 million in 2017. This is attributable to better occupancies of its existing food atriums and having a net opening of five outlets to a total of 60 outlets in 2018. From a longer view, the food atrium division had enjoyed a period of expansion from 33 outlets in 2009 to having as much as 65 outlets in 2015 before reducing its outlet count to about 55 – 60 for the last 3 years. EBITDA has increased by 23.6% year-on-year to S$ 31.0 million in 2018 from S$ 25.1 million in 2017 and it is the highest EBITDA figure recorded by the segment in 10 years.
  
  
  

Source: Breadtalk’s Annual Reports

• Key Segment 3: Restaurants
  (Brand: Din Tai Fung)
  Revenue had grown by CAGR of 16.4% to S$ 152.3 million in 2018 from S$ 39.0 million in 2009. EBITDA has grown by CAGR of 21.1% to S$ 28.1 million in 2018 from S$ 5.0 million in 2009. It is contributed mainly by a continuous growth in Din Tai Fung Restaurant outlets in both Singapore and Thailand from 6 outlets in 2009 to 28 outlets in 2018.
  
  
  

Source: Breadtalk’s Annual Reports

• Profitability
  Collectively, Breadtalk has maintained its group revenue at S$ 600 – 650 million a year from 2015 to 2018, after a period of rapid growth in sales from S$ 246.5 million in 2009. Profits margins, however, had eroded for the past 10 years. This has resulted in shareholders’ earnings to be kept at S$ 10 – 15 million per annum throughout the 10-year period.
  
  
  

Source: Breadtalk’s Annual Reports

• Cash Flow Management
  From 2009 to 2018, Breadtalk generated S$ 591.0 million in cash flows from its operating activities and had raised a total of S$ 84.4 million in net long-term borrowings. Out of which, it has spent:
  
  – S$ 470.5 million in net capital expenditures (CAPEX).
  – S$ 52.2 million in dividends to its existing shareholders.
  
  
  Hence, Breadtalk has increased its cash reserves from S$ 58.4 million in 2009 to S$ 185.0 million in 2018. Thus, it has demonstrated capabilities to generate positive cash flows, grow its number of F&B outlets, and to continuously reward its shareholders with dividends.
  
  
  

Source: Breadtalk’s Annual Reports

• Balance Sheet Strength
  As at 31 December 2018, Breadtalk has reported having as much as S$ 141.2 million in non-current liabilities and a total of S$ 133.7 million in shareholders’ equity. Thus, its gearing ratio is 105.63%.
  
  In 2018, it has incurred S$ 6.0 million in net finance cost. Breadtalk has the capability to service the debt as it had generated S$ 65.6 million in net cash flows from operations (before interest costs).
  
  
  
• Future Prospects
  Breadtalk has included a handful of new F&B brands into its portfolio in 2018. They include:
  
  
  a. Song Fa Bak Kut Teh
  Breadtalk had opened its first outlet in Shanghai in January 2018. It had averaged RMB 1 million per month. Following its success, Breadtalk has opened its first Song Fa Bak Kut Teh outlet in Beijing in January 2018.
  
  
  c. Wu Pao Chun
  Breadtalk has scheduled to open its first Wu Pao Chun outlet in January 2019 at Capitol Piazza, Singapore. Wu Pao Chun is a famous bakery that was founded by renowned bread master, Mr. Wu Pao Chun.
  
  
  b. Tai Gai
  Breadtalk opened its first Tai Gai outlet in Singapore in September 2018 at NEX Serangoon shopping mall. Tai Gai is a popular tea brand which is served with fruit-blended milk cheese crowns. Breadtalk plans to set up another 9 Tai Gai stores in Singapore and Thailand in 2019.
  
  
  
• P/E Ratio
  As of 30 March 2019, Breadtalk is trading at S$ 0.86 a share. In 2018, its earnings per share (EPS) was 2.70 cents. Thus, its current P/E Ratio is at 31.85, which is higher than its 10-Year Average of 23.52.
  
  
  

• P/B Ratio
  As at 31 December 2018, Breadtalk has net assets of S$ 0.24 per share. Thus, its current P/B Ratio is 3.58, which is above its 10-Year Average of 2.84.
  
  
  

• What’s my Dividend Yields?
  In 2018, Breadtalk has paid out 1.50 cents in dividends per share (DPS). Thus, its dividend yield is 1.74% per annum, which is below its 10-Year Average of 2.08% per annum.
  
  
  

VIA’s Verdict

Breadtalk had enjoyed a period of growth up till 2015 before it slowed down its expansion plans for the last 3 years. Presently, it is focused on introducing a few new brands (Song Fa, Tai Gai, and Wu Pao Chun) to its established markets such as Singapore, Thailand, and Mainland China for future growth.

In terms of valuation, it is trading at P/E and P/B Ratios that are above average in the last 10 years. It is also offering 1.74% a year in dividend yields if you choose to invest in it at S$ 0.86 a share.

So, would you invest in Breadtalk at S$ 0.86 a share today?

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