Should We Be Investing In Breadtalk Group Ltd Now?

In July 2000, Dr. George Quek has opened its first Breadtalk outlet at Bugis Junction. Promptly, Breadtalk has expanded into a well-known local bakery brand in Singapore. It was subsequently listed on the SGX in 2003. Since its listing, Breadtalk has ventured into restaurants and food atriums and grown its presence in 17 different countries worldwide.

As I write, Breadtalk Group Ltd (Breadtalk) is among Asia’s leading food & beverage conglomerates worth S$ 524.3 million in market capitalization. In this article, I’ll list down 8 key things that you need to know about Breadtalk before you invest.

#1: Stock Symbol

Ticker Symbol: SGX: CTN
Market Capitalization: S$ 524.3 Million (18 May 2018)

Share Price: S$ 0.93 (18 May 2018)

Industry: Consumer Products

#2: The Business

Breadtalk derives mainly from three business segments:

1. Bakery
   This division operates five bakery brands which include Breadtalk, Bread Society, Toast Box, Thye Moh Chan, and the Icing Room. On 31 March 2018, the bakery division has a total of 857 outlets. Out of which, 231 outlets are directly owned by the Breadtalk Group itself. The other 626 outlets are owned and managed by its franchisees. In 2017, this division has reported making S$ 297.2 million in revenues and S$ 9.8 million in profits before tax respectively.
   
2. Food Atrium
   This division operates a network of 53 food atriums under the brand, ‘Food Republic’ mainly in Singapore and China. In 2017, this division has reported making S$ 149.3 million in revenues and S$ 9.01 million in profits before tax respectively.
   
3. Restaurant
   This division operates a network of 27 Din Tai Fung restaurants that are located mainly in Singapore and Thailand. In 2017, the restaurant division has made S$ 140.7 million in revenues and S$ 30.1 million in profits before tax respectively.

Combined, Breadtalk has grown its number of F&B outlets from 278 in 2008 to 954 in 2017.

Source: Annual Reports of Breadtalk Group Ltd

#3: The Financials

Overall, Breadtalk has achieved growth in both revenues and earnings in the last 10 years. Revenues have grown from S$ 212.2 million in 2008 to S$ 599.7 million in 2017. Shareholders’ earnings grown from S$ 7.8 million in 2008 to S$ 21.8 million in 2017. The growth in both revenues and earnings are in line with Breadtalk’s growth in number of F&B outlets during the 10-year period.

Breadtalk has achieved a 10-Year Return on Equity (ROE) average of 13.60% a year. It means, Breadtalk has made, on average, S$ 13.60 in annual earnings from every S$ 100.00 in shareholders’ equity from 2008 to 2017.

Source: Annual Reports of Breadtalk Group Ltd

Calculated from Figures Obtained from Breadtalk’s Annual Reports

#4: Balance Sheet Strength

As at 31 March 2018, Breadtalk Group Ltd has non-current liabilities of S$ 220.9 million. Thus, its current debt-to-shareholders’ equity ratio works out to be 121.6%. Over the last 10 years, Breadtalk Group Ltd has grown its cash reserves from S$ 47.9 million in 2008 to S$ 141.2 million in 2017.

Source: Annual Reports of Breadtalk Group Ltd

#5: Future Prospects

Here are the key highlights of Breadtalk Group Ltd moving ahead:

HSR Healthcare Mixed-Use Development in China

On 3 January 2018, Breadtalk has signed a joint venture agreement with Perennial Real Estate Holdings Ltd to incorporate Perennial HC Holdings Pte Ltd. The total capital commitment is US$ 1.2 billion and is planned to be used to acquire and develop large-scale and predominantly healthcare integrated mixed-use developments in China. Breadtalk holds 5% stake in this joint venture for the first closing amount which is US$ 25 million and it will be funded through internally generated fund.

Venturing into India

On 18 January 2018, Breadtalk has signed a franchise agreement to establish the Breadtalk Bakery Chain in New Delhi and National Capital Region in India with Bakekneads LLP, a member of the Som Datt Group of Companies. Breadtalk is expected to open its flagship store in Delhi by 3Q 2018.

Ventures in China

On 26 January 2018, Breadtalk has opened its 1st Song Fa restaurant in Shanghai Jing An Kerry Centre. On 12 March 2018, Breadtalk has entered into a joint venture agreement via its 100%-owned subsidiary, Shanghai Star Food F&B Management Co. Ltd (SSF) with Wu Pao Chun Food Ltd to operate the Wu Pao Chun brand of bakeries in Beijing, Shanghai, Guangzhou and Shenzhen. In Shanghai, SSF will hold 80% stake in the joint venture. Meanwhile, for Beijing, Guangzhou and Shenzhen, Wu Pao Chun has the option to participate up to 40% shareholdings in the joint venture.

Ventures in Indonesia

On 23 March 2018, Breadtalk has entered into a joint venture agreement with PT Pura Indah Berkat to incorporate Pura Indah Berkat Venture. This joint venture company will operate the exclusive Toast Box chain of outlets in the Indonesia archipelago of islands. Breadtalk would hold 70% shareholdings of this joint venture company.

#6: Valuation

As I write, Breadtalk is trading at S$ 0.93 a share.

On 17 May 2018, Breadtalk has completed a share split exercise where 1 share of Breadtalk is now split into 2 shares. As such, Breadtalk has issued a total of 563.8 million ordinary shares presently.
In 2017, Breadtalk has made S$ 21.8 million in shareholders’ earnings. Hence, its earnings per share (EPS) would be S$ 0.039 based on 563.8 million shares. At trading price of S$ 0.93, its current P/E Ratio works out to be 23.85.

As at 31 March 2018, Breadtalk has reported S$ 181.6 million in shareholders’ equity. Hence, its net assets a share works out to be S$ 0.322 based on 563.8 million shares. At trading price of S$ 0.93, its current P/B Ratio works out to be 2.89.

In 2017, Breadtalk has paid out S$ 14.068 million in dividends. Hence, based on 563.8 million shares, Breadtalk’s dividend per share (DPS) for 2017 works out to be S$ 0.025. If Breadtalk is able to maintain its DPS at S$ 0.025 in the year 2018, its expected gross dividend yields work out to be 2.68% if I invest in Breadtalk at S$ 0.93.  

#7: Investors Relation

For further enquiries or to request for additional investment information on Breadtalk Group Ltd’s Investors Relation matters, you may contact:
Mr. Benjamin Tay

Investors Relation

Telephone: +65 6285 6116

Email: ir@breadtalk.com

Website: http://breadtalk.listedcompany.com/

#8: Major Shareholders

As at 1 March 2018, the substantial shareholders of Breadtalk Group Ltd and their respective shareholdings are as followed:
– George Quek Meng Teck: 34.00%

– Katherine Lee Lih Teng: 18.62%

– Primacy International Limited: 14.02%

– Paradice Investment Management LLC: 6.33%

Note:

George Quek and his wife, Katherine Lee are substantial shareholders of Breadtalk Group Ltd. George Quek is appointed as Chairman while his wife, Katherine Lee is appointed as Deputy Chairman of the company.

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