Company Guide BreadTalk Group Ltd

Version 9 | Bloomberg: BREAD SP | Reuters: BRET.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 2 Aug 2019

HOLD Drag from bakery and start-up losses Last Traded Price ( 1 Aug 2019): S$0.715 (STI : 3,291.75) Price Target 12-mth: S$0.77 (8% upside) (Prev S$0.92) Maintain HOLD, with a lower TP of S$0.77. We remain neutral on BreadTalk. The weak bakery performance in in the Analyst current quarter, along with wider than expected start-up losses Alfie YEO +65 6682 3717 [email protected] from 4orth division led us to reduce our FY19-20F earnings by Andy SIM, CFA +65 6682 3718 [email protected] 18-19%. While we expect modest EBIT growth led by What’s New Restaurant and Food Atrium divisions, higher interest costs due • 2Q19 earnings below estimates, dragged by losses in to SFRS (I) 16 will be a drag on earnings from FY19F. The stock bakery and 4orth division is fairly valued trading at 19.5x PE for its core F&B business, in line with Singapore-listed F&B peers’ average. • Interim DPS of 0.5 Scts declared • Cut FY19-20F earnings by 18-19% Where we differ. Our earnings forecasts are below consensus as we factor in a longer breakeven period for the new 4orth • Maintain HOLD, TP lowered to S$0.77 division. The division is in its infancy with scope to increase store count, that will lengthen the division’s EBIT breakeven period. This unit should be capable of delivering similar margins to the Price Relative restaurant division in the long term.

Potential catalyst. We see potential for a special dividend of up to 4.5Scts if Perennial sells AXA Tower.

Valuation: Our TP of S$0.77 is derived from a sum-of-parts (SOTP) valuation. We value its retail business at S$0.54 on 22x PE on Forecasts and Valuation blended FY19-20F earnings, investment properties at S$0.33 FY Dec (S$m) 2018A 2019F 2020F 2021F based on market value, and net debt at S$0.10. Revenue 610 660 698 738 EBITDA 79.7 83.0 89.3 95.9 Pre-tax Profit 31.1 21.7 23.6 27.9 Key Risks to Our View: Net Profit 15.2 13.2 14.4 17.0 Operational risks include food safety and licences as well as Net Pft (Pre Ex.) 16.4 13.4 14.4 17.0 negative publicity. In extreme cases, food operating licences Net Pft Gth (Pre-ex) (%) 22.1 (18.4) 7.6 18.0 EPS (S cts) 2.70 2.35 2.56 3.02 can be revoked for lapse in food safety procedures. Negative EPS Pre Ex. (S cts) 2.91 2.38 2.56 3.02 publicity may lead to weaker demand and poorer marketability EPS Gth Pre Ex (%) 22 (18) 8 18 when selling its franchises as the public and franchisees would Diluted EPS (S cts) 2.69 2.34 2.55 3.00 shy away from their association with BreadTalk. Net DPS (S cts) 1.50 1.50 1.50 1.50 BV Per Share (S cts) 23.7 24.6 25.6 27.1 At A Glance PE (X) 26.5 30.5 28.0 23.7 PE Pre Ex. (X) 24.6 30.1 28.0 23.7 Issued Capital (m shrs) 564 P/Cash Flow (X) 6.1 9.2 7.5 6.2 Mkt. Cap (S$m/US$m) 403 / 293 EV/EBITDA (X) 5.9 5.8 5.4 4.9 Major Shareholders (%) Net Div Yield (%) 2.1 2.1 2.1 2.1 Meng Tong Quek 34.0 P/Book Value (X) 3.0 2.9 2.8 2.6 Lih Leng Lee 18.6 Net Debt/Equity (X) 0.2 0.3 0.3 0.2 Free Float (%) 47.4 ROAE (%) 11.5 9.7 10.2 11.4 3m Avg. Daily Val (US$m) 0.17 Earnings Rev (%): (19) (18) N/A ICB Industry : Consumer Services / General Retailers Consensus EPS (S cts): 2.80 3.10 4.30 Other Broker Recs: B: 0 S: 0 H: 3 Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P

ed: JS/ sa: MA, PY, CS Company Guide

BreadTalk Group Ltd

WHAT’S NEW

Bakery division start-up losses a drag

2Q19 below: Headline net profit of S$1m (-57.9% y-o-y) Restaurant division grew strongly in 2Q19 to offset poor trailed our estimates. Revenue grew 9.8% y-o-y to S$163m 1Q19 performance: There was a sequential doubling of with operating profit declining by 10.3% y-o-y to S$10.2m. operating profit to S$8.3m in 2Q19 as 2 new Singapore Revenue growth was across all segments, particularly outlets (Jewel and Marina Bay Sands) were added. This is in Restaurant (+18% y-o-y, S$44m) and 4orth (+158%, S$7.8m) addition to ’s Terminal 21 and Singapore’s Great divisions while Bakery (+3%, S$70.8m) and Food Atrium World City outlets which opened in 1Q19. However, 1H19’s (+2%, S$39.6m) grew by a smaller extent. The drag on net operating profit was flat compared to 1H18 with 1H19 profit profit was from losses before tax in the Bakery division (- before tax trailing 13% y-o-y at S$11.5m. A new outlet in S$1.9m vs S$1.5m profit before tax in 2Q18) and larger London has yet to turn profitable, while Singapore operations losses before tax of S$3.2m at the 4orth division vs S$0.2m are facing slight margin pressure, accounting for the overall loss in 2Q18. An interim dividend of 0.5 Scts was declared, drag in profit before tax in 1H19. unchanged from 2Q18, and in line with expectations. More outlets, wider losses at 4orth division: Losses widened Bakery division weak, dragged by China: The Bakery division to S$3.2m PBT from S$0.2m loss last year and S$2.3m loss in posted losses before tax of S$1.9m on the back of weaker 1Q19 due to an increase in number of outlets and start-up revenue (from a S$1.5m profit before tax in 2Q18), dragged costs. There are now 21 outlets, 7 new outlets from 1Q19 by China, offset by stronger performance in Singapore. and 13 new outlets since last year. Revenue growth of 3% y-o-y was only achieved through the Cut FY19-20F earnings by 18-19%: 1H19 earnings trailed our acquisition of 50% interest in BTM (Thailand) Ltd from Minor previous estimates following earnings drag from the bakery Food Group. There was a net store count increase of 33 to division and start-up losses from the 4orth division. The 875 stores partly due to the consolidation of Thailand’s 50 impact of higher interest rates from accounting of leases outlets. There was a decline in franchised stores in line with under SFRS (I) 16 has not helped reported earnings either. the rationalisation of franchisees. While headline revenue Going forward, we impute higher interest rates due to the increased, higher operating costs led to an operating loss of new lease accounting as well. S$0.8m compared to S$1.8m operating profit in 2Q18. Maintain HOLD, lower TP to S$0.77: Our SOTP TP is now Food Atrium continues to grow: Food Atrium division turned lower at S$0.77 based on S$0.54 for the core F&B business in a decent performance, with profit before tax growing by valued at 22x blended FY19-20F EPS, investment properties at 13% y-o-y to S$4.2m. Three new “Sergeant kitchens” in S$0.33 based on market value, and net debt at S$0.10. The Bangkok, and and strong same store stock is now valued fairly at 19.5x for its core F&B business, in sales growth (SSSG) in North China, East China and Hong line with Singapore-listed F&B peer average. Upside for the Kong helped to fuel revenue growth. Stall occupancy also stock remains limited. Maintain HOLD. remained high.

Page 2

Company Guide

BreadTalk Group Ltd

Quarterly / Interim Income Statement (S$m) FY Dec 2Q2018 1Q2019 2Q2019 % chg yoy % chg qoq

Revenue 149 158 163 9.8 3.6 Cost of Goods Sold (65.6) (51.1) (54.3) (17.2) 6.2 Gross Profit 83.2 106 109 31.0 2.4 Other Oper. (Exp)/Inc (71.8) (97.2) (98.8) 37.6 1.6 Operating Profit 11.4 9.22 10.2 (10.3) 10.8 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 - - Associates & JV Inc (0.5) 0.0 (0.1) 80.0 nm Net Interest (Exp)/Inc (1.2) (5.4) (5.1) (310.5) 5.1 Exceptional Gain/(Loss) (2.6) (0.2) 0.0 nm nm Pre-tax Profit 7.03 3.65 5.01 (28.7) 37.1 Tax (2.6) (2.5) (2.9) 11.8 19.4 Minority Interest (2.0) 0.12 (1.1) 46.5 nm Net Profit 2.44 1.32 1.02 (57.9) (22.2) Net profit bef Except. 5.02 1.48 1.02 (79.6) (30.6) EBITDA 20.1 47.4 49.6 146.4 4.5 Margins (%) Gross Margins 55.9 67.5 66.7 Opg Profit Margins 7.7 5.8 6.3 Net Profit Margins 1.6 0.8 0.6

Source of all data: Company, DBS Bank

Page 3

Company Guide

BreadTalk Group Ltd

Bakery outlets 885 CRITICAL DATA POINTS TO WATCH 893.9 871 863 875 880

766.2 Critical Factors 638.5

510.8 Focus on driving higher operating efficiencies and margin 383.1 improvement. The focus is to raise efficiency of its existing 255.4 operations, lower operating costs, and expand margins. We see FY19-20F operating margins improving at the group level, driven by a 127.7 0.0 higher proportion of revenue from its higher-margin Restaurant and 2017A 2018A 2019F 2020F 2021F Food Atrium businesses. Restaurant outlets Driving margin improvement through cost efficiencies. Initiatives such 36 36.7 34 as better demand planning, more efficient human resource planning, 32 29.4 28 and tighter cost controls have benefitted operating margins. These 25 have led to lower food wastage, and reduction in unnecessary payroll 22.0 expenses. Management has also been spending less on capex, 14.7 leading to some moderation in depreciation expenses going forward. 7.3 Longer breakeven for 4orth division over the immediate term. We 0.0 see the new 4orth division concept restaurants as a longer term 2017A 2018A 2019F 2020F 2021F driver of earnings. Concept brands include Sō Ramen, TaiGai, and Nayuki bakery outlets in Singapore, and Song Fa Bak Kut Teh and Food court outlets 67.32 66 Wu Pao Chun Bakery outlets in China. Over time, we expect the 62 58 division to yield higher margins similar to the Restaurant division. But 53 55 53.86 for now, the division is in its start-up phase and we see the operation taking a longer-than-expected time reach breakeven. This will be a 40.39 slight drag on group operating profit and margins in the coming 26.93 quarters. 13.46 Changes to management personnel, tenant mix and tenant quality 0.00 have enabled Food Atrium to turn profitable. The Food Atrium 2017A 2018A 2019F 2020F 2021F division made a marked turnaround in FY17 after it closed non- Total performing outlets in tier 2 cities in China the year before. Food 987 Atrium’s management team in China was replaced with new 996.9 949 946 965 976 personnel who have made changes to tenant quality and tenant mix, 797.5 leading to improvements in performance and occupancy at Food Atriums in China. It will now focus on its operations in Beijing, 598.1

Shanghai, Shenzhen and Guangzhou where tables can turn more 398.7 frequently. Earnings recovery is on track, driven by better profitability 199.4 and cost leverage from Food Atrium division across outlets in Beijing, Xi’an, Thailand, and Singapore. 0.0 2017A 2018A 2019F 2020F 2021F

Din Tai Fung is in London. BreadTalk has opened a new outlet in Annual sales per outlet S$m Covent Garden last year via a JV (where BreadTalk is the major 0.73 0.7 0.7 shareholder) with Fairy Rise Development ( franchise 0.67 0.63 0.63 owner), Din Tai Fung , a UK partner and a Taiwanese 0.6 individual. Another outlet is scheduled to open in 2H19 this year at Centre Point in Tottenham Court Road. We see scope for more 0.4 outlets in Thailand as there are only eight Din Tai Fung restaurants 0.3 there. As restaurant margins are attractive, a better sales mix from the restaurant business would improve overall profitability eventually. 0.1

0.0 2017A 2018A 2019F 2020F 2021F

Source: Company, DBS Bank

Page 4

Company Guide

BreadTalk Group Ltd

Appendix 1: A look at Company's listed history – what drives its share price?

Share price has been driven by various factors including earnings, properties and strategic investors

Source: DBS Bank

Page 5

Company Guide

BreadTalk Group Ltd

Leverage & Asset Turnover (x) 1.2 Balance Sheet: 1.40

1.20 1.1

Cash business; balance sheet in net debt. As with all food 1.00 service companies, BreadTalk is a cash business. The business 1.0 0.80 generated S$65-90m of operating cashflows annually and 0.60 0.9 S$18m-54m of positive free cashflows in the last four years. Net 0.40 debt as of end-June 2019 was about c.S$94.2m, equivalent to 0.8 0.20 approximately 16.7 Scts per share, or a net debt ratio of 0.7x. 0.00 0.7 BreadTalk was in net cash till FY12 when it built its BreadTalk 2017A 2018A 2019F 2020F 2021F IHQ. In FY13 when it opened its IHQ, net debt stood at S$89m. Gross Debt to Equity (LHS) Asset Turnover (RHS) It has S$100m of medium-term notes issued in 1Q18 due on 17 Capital Expenditure January 2023 at 4% coupon for general corporate purposes, S$ m including refinancing of existing borrowings, and financing 60.0 capital expenditure and general working capital. 50.0 40.0 Share Price Drivers: 30.0

20.0

Changes to property holdings are likely to drive share price. 10.0

Valuations for BreadTalk re-rated to an all-time high when it 0.0 moved into its IHQ in 2013. Similarly, when it sold 112 Katong 2017A 2018A 2019F 2020F 2021F last year and declared special dividends, its share price re-rated Capital Expenditure (-) as well. In 4Q16, BreadTalk announced the sale of 111 ROE (%) Somerset, which also lifted its share price in anticipation of 16.0% special dividends. We expect special dividends if and when AXA 14.0% and/or CHIJMES is sold. The adoption of SFRS (I) 9 in 2Q18 12.0% which accounts for investment securities at fair value has led us 10.0% to increase our SOTP-based TP for the investment properties 8.0% component. 6.0% 4.0% Key Risks: 2.0% 0.0% 2017A 2018A 2019F 2020F 2021F Food safety and licences. As a restaurant operator, it is important to maintain food safety. Lapses would lead to Forward PE Band (x) reputational risks and in extreme cases, food operation licences (x) could be revoked. 49.4 44.4 +2sd: 41.6x Negative publicity affects consumer confidence and the 39.4 +1sd: 36.6x marketability of its franchise. BreadTalk has had some negative 34.4 publicity, especially in 2015 over food safety and food Avg: 31.7x 29.4 preparation procedures in Singapore and China. Incidents such -1sd: 26.7x as these can generate negative response from the public which 24.4 -2sd: 21.8x could affect sales as well as the marketability of its franchise 19.4 Aug-15 Aug-16 Aug-17 Aug-18 overseas. PB Band (x) Company Background (x) 5.5 5.0 BreadTalk Group is a Singapore-based food and beverage 4.5 +2sd: 4.62x (F&B) group engaged in the operations and franchising of 4.0 +1sd: 3.89x bakery/confectionery outlets, food courts and restaurants 3.5 across the region. BreadTalk’s portfolio currently has six brands 3.0 Avg: 3.17x

– BreadTalk, ToastBox, , Ramen Play, San Pou Tei 2.5 -1sd: 2.45x and Din Tai Fung. It operates over 900 outlets across 17 2.0 -2sd: 1.73x 1.5 countries. Aug-15 Aug-16 Aug-17 Aug-18

Source: Company, DBS Bank

Page 6

Company Guide

BreadTalk Group Ltd

Key Assumptions FY Dec 2017A 2018A 2019F 2020F 2021F

Bakery outlets 871 863 875 880 885 Restaurant outlets 25.0 28.0 32.0 34.0 36.0 Food court outlets 53.0 55.0 58.0 62.0 66.0 Total 949 946 965 976 987 Annual sales per outlet 0.63 0.63 0.67 0.70 0.73

Segmental Breakdown FY Dec 2017A 2018A 2019F 2020F 2021F

Revenues (S$m) Bakery operations 297 282 292 299 307 Restaurant sales 141 152 178 192 208 Food Atrium income 149 157 169 184 200 4orth 7.86 14.2 17.0 17.9 18.8 Others 4.62 4.41 4.73 4.73 4.73 Total 600 610 660 698 738 Operating profit (S$m) Bakery operations 9.46 6.49 7.29 7.48 7.67 Restaurant sales 24.4 22.2 26.6 28.9 31.2 Food Atrium income 8.90 16.6 16.9 18.4 20.0 4orth (0.3) (3.7) (3.7) (3.7) (3.7) Others (7.0) (1.4) (4.2) (4.2) (4.2) Total 35.5 40.2 42.9 46.8 50.9 Operating profit (S$m) Bakery operations 3.2 2.3 2.5 2.5 2.5 Restaurant sales 17.4 14.6 15.0 15.0 15.0 Food Atrium income 6.0 10.6 10.0 10.0 10.0 4orth (4.2) (26.3) (21.9) (20.9) (19.9) Others (150.6) (31.5) (88.2) (88.2) (88.2) Total 5.9 6.6 6.5 6.7 6.9

Income Statement (S$m) FY Dec 2017A 2018A 2019F 2020F 2021F

Revenue 600 610 660 698 738 Cost of Goods Sold (266) (267) (221) (234) (247) Gross Profit 333 343 439 464 491 Other Opng (Exp)/Inc (298) (303) (396) (417) (440) Operating Profit 35.5 40.2 42.9 46.8 50.9 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.21 (1.8) (0.4) (0.4) (0.4) Net Interest (Exp)/Inc (3.2) (6.0) (20.7) (22.8) (22.6) Exceptional Gain/(Loss) 8.27 (1.2) (0.2) 0.0 0.0 Pre-tax Profit 40.8 31.1 21.7 23.6 27.9 Tax (11.0) (11.4) (6.5) (7.1) (8.4) Minority Interest (8.1) (4.5) (2.0) (2.2) (2.5) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 21.7 15.2 13.2 14.4 17.0 Net Profit before Except. 13.4 16.4 13.4 14.4 17.0 EBITDA 76.2 79.7 83.0 89.3 95.9 Growth Revenue Gth (%) (2.5) 1.7 8.2 5.8 5.7 EBITDA Gth (%) (4.7) 4.5 4.3 7.6 7.3 Opg Profit Gth (%) 9.2 13.2 6.8 9.2 8.7 Net Profit Gth (Pre-ex) (%) 55.4 22.1 (18.4) 7.6 18.0 Margins & Ratio Gross Margins (%) 55.6 56.3 66.5 66.5 66.5 Opg Profit Margin (%) 5.9 6.6 6.5 6.7 6.9 Net Profit Margin (%) 3.6 2.5 2.0 2.1 2.3 ROAE (%) 16.6 11.5 9.7 10.2 11.4 ROA (%) 4.0 2.6 1.7 1.5 1.8 ROCE (%) 7.4 6.7 5.6 4.8 5.2 Div Payout Ratio (%) 90.9 55.6 63.9 58.7 49.7 Net Interest Cover (x) 11.1 6.6 2.1 2.1 2.3 Source: Company, DBS Bank

Page 7

Company Guide

BreadTalk Group Ltd

Quarterly / Interim Income Statement (S$m) FY Dec 2Q2018 3Q2018 4Q2018 1Q2019 2Q2019

Revenue 149 158 155 158 163 Cost of Goods Sold (65.6) (68.5) (67.1) (51.1) (54.3) Gross Profit 83.2 89.1 87.6 106 109 Other Oper. (Exp)/Inc (71.8) (79.7) (77.0) (97.2) (98.8) Operating Profit 11.4 9.45 10.6 9.22 10.2 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (0.5) (0.3) (1.0) 0.0 (0.1) Net Interest (Exp)/Inc (1.2) (1.9) (0.6) (5.4) (5.1) Exceptional Gain/(Loss) (2.6) (0.2) 1.95 (0.2) 0.0 Pre-tax Profit 7.03 7.07 11.1 3.65 5.01 Tax (2.6) (3.2) (3.2) (2.5) (2.9) Minority Interest (2.0) (1.2) 1.07 0.12 (1.1) Net Profit 2.44 2.70 8.88 1.32 1.02 Net profit bef Except. 5.02 2.86 6.93 1.48 1.02 EBITDA 20.1 20.0 22.1 47.4 49.6

Growth Revenue Gth (%) 0.2 5.9 (1.8) 1.8 3.6 EBITDA Gth (%) 15.3 (0.5) 10.5 114.6 4.5 Opg Profit Gth (%) 30.5 (17.1) 12.3 (13.1) 10.8 Net Profit Gth (Pre-ex) (%) 217.1 (43.0) 142.2 (78.7) (30.6) Margins Gross Margins (%) 55.9 56.5 56.6 67.5 66.7 Opg Profit Margins (%) 7.7 6.0 6.9 5.8 6.3 Net Profit Margins (%) 1.6 1.7 5.7 0.8 0.6

Balance Sheet (S$m) FY Dec 2017A 2018A 2019F 2020F 2021F

Net Fixed Assets 169 173 183 181 176 Invts in Associates & JVs 36.7 34.9 34.6 34.2 33.8 Other LT Assets 121 133 487 487 486 Cash & ST Invts 154 190 172 177 194 Inventory 9.72 11.3 8.42 8.91 9.42 Debtors 52.0 56.5 58.7 62.1 65.6 Other Current Assets 8.70 9.92 9.92 9.92 9.92 Total Assets 552 608 954 960 975

ST Debt 57.1 97.8 53.7 53.7 53.7 Creditor 90.3 97.0 76.7 74.3 78.6 Other Current Liab 109 109 202 202 202 LT Debt 126 128 169 169 169 Other LT Liabilities 14.5 13.2 283 283 283 Shareholder’s Equity 129 134 138 144 153 Minority Interests 25.5 29.1 31.1 33.2 35.7 Total Cap. & Liab. 552 608 954 960 975

Non-Cash Wkg. Capital (129) (129) (202) (196) (196) Net Cash/(Debt) (28.5) (36.2) (50.8) (45.7) (28.7) Debtors Turn (avg days) 33.3 32.5 31.9 31.6 31.6 Creditors Turn (avg days) 143.1 151.7 175.6 144.2 138.2 Inventory Turn (avg days) 15.8 17.0 19.9 16.6 16.6 Asset Turnover (x) 1.1 1.1 0.8 0.7 0.8 Current Ratio (x) 0.9 0.9 0.7 0.8 0.8 Quick Ratio (x) 0.8 0.8 0.7 0.7 0.8 Net Debt/Equity (X) 0.2 0.2 0.3 0.3 0.2 Net Debt/Equity ex MI (X) 0.2 0.3 0.4 0.3 0.2 Capex to Debt (%) 20.0 21.2 22.5 18.0 18.0 Z-Score (X) 2.2 2.0 2.2 2.3 2.3

Source: Company, DBS Bank

Page 8

Company Guide

BreadTalk Group Ltd

Cash Flow Statement (S$m) FY Dec 2017A 2018A 2019F 2020F 2021F

Pre-Tax Profit 40.8 31.1 21.7 23.6 27.9 Dep. & Amort. 40.5 41.3 40.5 42.9 45.3 Tax Paid (10.1) (9.6) (6.5) (7.1) (8.4) Assoc. & JV Inc/(loss) (0.2) 1.80 0.35 0.37 0.39 Chg in Wkg.Cap. 15.0 (6.9) 73.0 (6.2) 0.19 Other Operating CF (1.5) 7.85 (85.2) 0.0 0.0 Net Operating CF 84.4 65.6 43.8 53.5 65.4 Capital Exp.(net) (36.5) (47.8) (50.0) (40.0) (40.0) Other Invts.(net) 14.6 (3.6) 0.0 0.0 0.0 Invts in Assoc. & JV (3.3) (0.5) 0.0 0.0 0.0 Div from Assoc & JV 0.06 0.0 0.0 0.0 0.0 Other Investing CF (12.7) 0.40 0.0 0.0 0.0 Net Investing CF (37.9) (51.5) (50.0) (40.0) (40.0) Div Paid (16.9) (11.3) (8.4) (8.4) (8.4) Chg in Gross Debt 1.34 43.8 (3.6) 0.0 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (8.9) (2.5) 0.0 0.0 0.0 Net Financing CF (24.4) 30.0 (12.0) (8.4) (8.4) Currency Adjustments (1.5) (0.4) 0.0 0.0 0.0 Chg in Cash 20.7 43.7 (18.2) 5.09 17.0 Opg CFPS (S cts) 12.3 12.9 (5.2) 10.6 11.6 Free CFPS (S cts) 8.52 3.17 (1.1) 2.40 4.51 Source: Company, DBS Bank

Target Price & Ratings History

Source: DBS Bank Analyst: Alfie YEO Andy SIM, CFA

Page 9

Company Guide

BreadTalk Group Ltd

DBS Bank recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame) *Share price appreciation + dividends

Completed Date: 2 Aug 2019 07:50:30 (SGT) Dissemination Date: 2 Aug 2019 08:38:38 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Page 10

Company Guide

BreadTalk Group Ltd

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 30 Jun 2019 2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services: 3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced: 4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 11

Company Guide

BreadTalk Group Ltd

RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.

DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited, a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For any query regarding the materials herein, please contact Carol Wu (Reg No. AH8283) at [email protected]

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Page 12

Company Guide

BreadTalk Group Ltd

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608 - 610, 6th Floor, International Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated Financial by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the Centre DFSA rulebook) and no other person may act upon it.

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as Emirates defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Page 13

Company Guide

BreadTalk Group Ltd

DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 13th Floor One Island East, 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 18 Westlands Road, Capital Square, Marina Bay Financial Centre Tower 3 Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 3668 4181 , Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E

THAILAND INDONESIA DBS Vickers Securities (Thailand) Co Ltd PT DBS Vickers Sekuritas (Indonesia) Contact: Chanpen Sirithanarattanakul Contact: Maynard Priajaya Arif 989 Siam Piwat Tower Building, DBS Bank Tower 9th, 14th-15th Floor Ciputra World 1, 32/F Rama 1 Road, Pathumwan, Jl. Prof. Dr. Satrio Kav. 3-5 Bangkok Thailand 10330 Jakarta 12940, Indonesia Tel. 66 2 857 7831 Tel: 62 21 3003 4900 Fax: 66 2 658 1269 Fax: 6221 3003 4943 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

Page 14