Is BreadTalk Group Limited Still The Talk of The Town?
February 3, 2020
BreadTalk Group Limited (SGX: CTN) is a multinational food and beverage business listed on the Singapore Stock Exchange. It started off as a bakery brand in Singapore in the year 2000 and was listed on the public stock exchange in the year 2003.
BreadTalk Group underwent significant growth
under the leadership of its founder and chairman Mr George Quek. It has grown
beyond its traditional bread and butter business by venturing into other food
and beverage businesses like managing food courts under the Food Republic
brand. The company has also ventured into successful restaurant franchises,
most notably the Din Tai Fung franchise in Singapore.
Under the shrewd leadership and management, BreadTalk
became one of the most recognized brands and darling stocks of Singapore. Ever
since IPO, share prices have tagged along with its year-on-year increasing
However, as of recent months, the share price of BreadTalk Group has seen some major corrections. The share price has tanked around 51% from the peak of $1.20 per share to a 3 year low of $0.58 per share. What has happened and is this a buying opportunity?
Before rushing into making any decision, it is
wise to do a post-mortem to find out what caused the sudden drop in the share
price. So, what went wrong with BreadTalk Group?
1. Flattish Revenue and Gross Profit
The food and beverage business is considered a
defensive sector due to its business traits. Food and beverages are essential
consumables that automatically rides on population growth even in the worst
BreadTalk Group’s historical 5 years revenue has
not shown any significant growth. Although the latest trailing twelve months
(TTM) results show a hint of a resurgence, it has since warned of a full-year loss due
to the unrest of Hong Kong and also widening loss of its bakery business in
China and Thailand.
To add salt on wounds, several other brands
under its portfolio are also reported not to be doing well, namely Wu Pao Chun,
Song Fa, Tai Gai and Nayuki.
2. Fierce Competition from Multiple Fronts and
The Wuhan Coronavirus Threat
BreadTalk Group has multiple business segments,
which are divided into Bakery, Food Atrium, Restaurant, and 4orth.
The largest revenue contribution segment is still the Bakery segment, which
contributes to 44% of its total operating revenue.
Source: BreadTalk Group FY19 Q3 Report
However, their main business has not been
growing. In fact, for the last 3 years, revenue contributed by the bakery
division has been experiencing a dip.
Although BreadTalk sells great quality bakery
products, bread is a daily necessity with little or no brand loyalty. And with
so many homegrown and artisanal bakeries like Cedele, Tiong Bahru Bakery and
Baker & Cook, it is no wonder the bakery division of BreadTalk is facing
Its next business vertical, which is also heavily
under pressure is the Food Atrium business, which is basically the food courts
under the brand of Food Republic situated in major shopping malls and other
strategic locations. Singapore is no stranger to multiple listed food court
operators, which include players like Kimly Limited and Koufu Group
Also, worth mentioning is the geographical exposure
of BreadTalk Group’s revenue contributing countries. Singapore remains the main
bulk of its business at 55% even though its added efforts to aggressively
expand internationally. Next in place is Mainland China, whom as of today is
taking the brunt force of the Wuhan coronavirus outbreak.
With China heavily affected by the Wuhan
coronavirus, BreadTalk Group would most likely see its upcoming revenues
3. Loss of Growth Plans & Overpaying for
Food Junction Acquisition?
BreadTalk Group is well known for its aggressive
merger and acquisition methods to further grow its business in multiple
segments. Plus, the company is also tactful in handling franchise businesses.
The Singapore Din Tai Fung business franchise is one of the great track records
of BreadTalk Group being able to build a new business vertical that contributes
positively to its income.
Though this purchase may have turned BreadTalk
Group into the 3rd largest food court operator in Singapore, profit margin wise
the food court business is not one of the lucrative business’s segments.
It’s latest franchise with Wu Pao Chun bakery,
to bring yet another bakery business into Singapore could potentially
cannibalize its existing bakery business, not to also forget it is highly
competitive and saturated with so many players around.
Looking at the current scenario and challenges
that BreadTalk Group is currently facing, even though it used to be a stock
darling with aggressive growth plans and generous dividend payout, I would
definitely stay by the sidelines to further monitor the company rather than
jump straight at the opportunity to acquire BreadTalk Group’s shares.
BreadTalk Group Limited is not a company shy of controversies either. From allegations of its China business using expired raw materials to the mislabeling of its prepackage derived soya milk as a “freshly prepared” product, are some of the mistakes that are not supposed to happen in the competitive food and beverage business.
Ong Joo Parn is the co-founder of MyKayaPlus.com, a website that aims to spread financial literacy to the mass public. It aims to prove that financial freedom is possible through hard work and determination, even though without a degree in finance and accounts. Being a Malaysian based in Singapore, has allowed him to see the beauty not only from both stock markets, but also any great potentials around the world.