Consumer Staples / Singapore BREAD SP Consumer Staples / Singapore 9 September 2015
BreadTalk Group
BreadTalk Group Target (SGD): 1.31 Upside: 16.4% BREAD SP 8 Sep price (SGD): 1.13
Initiation: comfort food 1 Buy (initiation) • A bakery, restaurant and food-court company whose share price 2 Outperform has underperformed peers on the back of negative news flow 3 Hold • This seems unjustifiable given its revenue growth for 2015-17E, 4 Underperform and as we expect further upside from outlet and margin expansion 5 Sell • Initiate coverage with Buy(1) rating and 12-month TP of SGD1.31; we see a net-profit CAGR of 26.3% over 2014-17E
How do we justify our view?
Accordingly, we initiate coverage on SGD1.31, based on 2016E PER of BreadTalk with a Buy (1) rating, and 19.6x, which is the stock’s past-5- forecast a 26.3% net-profit CAGR year mean. over 2014-17, on the back of a 9.6% revenue CAGR and 3pp EBITDA ■ Risks Shane Goh margin expansion. The key risks to our call would be: 1) (65) 6499 6546 more food scandals, and 2) if the [email protected] ■ Catalysts company were unable to find good Bakeries: we expect 189 new locations for new outlets. outlets (20% rise from 30 June ■ Investment case 2015) to open by the end of 2017E, BreadTalk’s share price has with 150 franchised bakery stores. Share price performance underperformed the FSSTI and the We view this positively as franchised (SGD) (%) average of its local consumer peers outlets allow BreadTalk to expand 1.60 115 by 16% and 24% YTD, respectively, store count without much risk (low 1.48 108 on the back of a slew of negative capital outlay). 1.35 100 press in 2015, notably regarding the 1.23 93 1.10 85 soy-milk scandal in Singapore. We Food courts: the company aims to Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 think management has responded have 80 food courts by 2017, up BreadTalk (LHS) Relative to FSSTI (RHS) well to the situation by offering to from 62 as at 30 June 2015. We view take remedial action. And more this as a positive given the relatively importantly, we have not seen any 12-month range 1.11-1.58 stable revenue per food court. Market cap (USDbn) 0.22 significant impact on underlying 3m avg daily turnover (USDm) 0.18 consumer demand arising from the Restaurants: we expect the overall Shares outstanding (m) 282 news. As such, we believe the stock EBITDA margin expansion to come Major shareholder George Quek (52.6%) should be rerated, once the from the company either closing its headlines have moved on, and this non-performing RamenPlay Financial summary (SGD) should happen in the next 6 months. Year to 31 Dec 15E 16E 17E restaurants and giving up the lease Revenue (m) 637 703 776 or closing them and converting the Operating profit (m) 28 41 52 We are positive on BreadTalk’s space to house its better-performing Net profit (m) 12 19 25 outlook, driven by potential new brands, Din Tai Fung and Sanpoutei, Core EPS (fully-diluted) 0.044 0.067 0.087 store openings for its 3 business EPS change (%) 1.1 53.2 30.1 which lead to higher SSSG (11.7% Daiwa vs Cons. EPS (%) (7.2) 6.9 8.7 segments (bakeries, restaurants and over 2014-17E) for the restaurant PER (x) 25.8 16.8 12.9 food courts) and EBITDA margin business. Dividend yield (%) 1.3 1.3 1.3 expansion, due it culling its DPS 0.015 0.015 0.015 underperforming RamenPlay PBR (x) 2.9 2.5 2.2 ■ Valuation EV/EBITDA (x) 5.4 4.2 3.4 restaurants. We initiate coverage with a Buy (1) ROE (%) 11.6 16.0 18.1
rating and 12-month target price of Source: FactSet, Daiwa forecasts
See important disclosures, including any required research certifications, beginning on page 28 Consumer Staples / Singapore BREAD SP 9 September 2015
Contents
Comfort food ...... 6 Company background ...... 6 Share price underperformance ...... 6 Negative press: a year best forgotten so far ...... 7 Revenue growth driven by new stores and favourable macro trends ...... 8 Doing more with less ...... 11 Opening doors for other brands ...... 13 Forging relationships via its property investments ...... 14 Competition in China ...... 14 Financial position ...... 15 Assumptions ...... 15 Valuation ...... 17 SWOT analysis ...... 17 Risks to our call ...... 19 Company background ...... 19 Bakery business ...... 21 Restaurants ...... 23 Food-court business ...... 24 Management ...... 25 Shareholding structure ...... 25
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1 Buy (initiation) How do we justify our view? 2 Outperform
3 Hold Growth outlook
4 Underperform Valuation 5 Sell Earnings revisions
Growth outlook BreadTalk: number of outlets 1,200 We forecast revenue CAGR of 9.6% over 2014-17, driven 80 by new store openings. We expect 189 new outlets (20% 73 1,000 67 44 rise from 30 June 2015), largely due to the bakery and 63 40 58 36 food-court segments. 800 34 47 41 697 600 37 30 652 We also forecast a 3pp expansion in the EBITDA 547 602 32 26 479 margin, to 15% by 2017, on the back of higher SSS for 400 33 21 384 290 BreadTalk’s restaurant segment, as it continues to 8 238 rationalise its underperforming RamenPlay outlets. 200 182 225 258 270 280 290 299 119 157 181 0 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Direct-owned bakeries Franchise bakeries Restaurant Food Atrium Source: Company, Daiwa forecasts
Valuation BreadTalk: earnings per share (SGD cents) We initiate coverage with a Buy (1) rating and 12-month 10 8.72 target price of SGD1.31, implying 16.4% upside potential 9 from current share price levels. Our target price is based 8 6.70 on a 2016E PER of 19.6x, which is the same as 7 6 BreadTalk’s past 5-year mean. 4.83 5 4.27 4.33 4.44 3.95 4.01 4.12 Our target price is 15.5% below that of the Bloomberg 4 consensus, which we think is due to the other 2 3 brokerage houses covering the stock assigning more 2 aggressive valuation multiples. 1 0 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Source: Company, Daiwa forecasts
BreadTalk: share price and Bloomberg consensus EPS Earnings revisions forecasts (SGD) The Bloomberg consensus has lowered its 2015-16 EPS 1.8 0.10 forecasts for BreadTalk by 30.9% and 29.2% YTD, 0.09 1.6 respectively. We think this could be one factor 0.08 contributing to BreadTalk’s share price decline this year. 0.07 1.4 Our 2015 EPS is 7.2% below consensus, which we think 0.06 1.2 is due to its lower revenue projections vs. those of its 0.05 0.04 peers. However, our 2016 EPS is ahead by 6.9%, as we 1.0 expect stronger EBITDA margin expansion, driven by it 0.03 rationalising its underperforming restaurants. 0.8 0.02 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Price EPS Adjustments 2015 EPS Adjustments 2016 Source: Bloomberg
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Financial summary
Key assumptions Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Total number of outlets 448 534 686 836 914 985 1,055 1,120 Sales per outlet (SGD '000) 00000000 - Direct-owned bakery 993 1,002 984 953 956 985 1,005 1,015 - Franchised bakery 101 95 99 96 81 83 84 85 - Restaurant 3,880 3,275 3,665 3,442 3,486 3,939 4,412 4,853 - Food atrium 2,723 2,739 2,657 2,724 2,725 2,780 2,808 2,836
Profit and loss (SGDm) Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Sales div 1 00000000 Sales div 2 00000000 Other Revenue 303 366 447 537 590 637 703 776 Total Revenue 303 366 447 537 590 637 703 776 Other income 147101218151617 COGS (138) (166) (206) (252) (279) (295) (322) (355) SG&A (141) (166) (202) (234) (258) (276) (297) (322) Other op.expenses (22) (24) (31) (39) (46) (54) (59) (64) Operating profit 17 17 19 23 25 28 41 52 Net-interest inc./(exp.) (0) 0 0 (1) (2) (3) (3) (2) Assoc/forex/extraord./others 0001(0)(0)(0)(0) Pre-tax profit 17 17 19 22 23 25 39 50 Tax (6) (5) (6) (6) (7) (8) (12) (15) Min. int./pref. div./others 0 (0) (2) (3) (4) (5) (8) (11) Net profit (reported) 11 12 12 14 12 12 19 25 Net profit (adjusted) 11 12 12 14 12 12 19 25 EPS (reported)(SGD) 0.040 0.041 0.043 0.048 0.043 0.044 0.067 0.087 EPS (adjusted)(SGD) 0.040 0.041 0.043 0.048 0.043 0.044 0.067 0.087 EPS (adjusted fully-diluted)(SGD) 0.040 0.041 0.043 0.048 0.043 0.044 0.067 0.087 DPS (SGD) 0.010 0.015 0.013 0.018 0.015 0.015 0.015 0.015 EBIT 17 17 19 23 25 28 41 52 EBITDA 38 41 50 62 71 82 100 116
Cash flow (SGDm) Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Profit before tax 17 17 19 22 23 25 39 50 Depreciation and amortisation 22 24 31 39 46 54 59 64 Tax paid (4) (5) (5) (8) (7) (8) (12) (15) Change in working capital 12 11 7 16 6 (10) (2) (2) Other operational CF items (0)2115565 Cash flow from operations 45 49 53 71 73 66 90 102 Capex (37) (38) (93) (107) (71) (49) (53) (58) Net (acquisitions)/disposals 9 0 (23) (17) (16) (18) 1 2 Other investing CF items (6)(12)(11)31122 Cash flow from investing (34) (50) (127) (120) (86) (66) (51) (55) Change in debt 42058722918(25)(22) Net share issues/(repurchases) (0) (1) (0) 0 (1) 0 0 0 Dividends paid (2) (3) (6) (4) (5) (4) (4) (4) Other financing CF items (1) (0) (2) (4) (4) (6) (7) (8) Cash flow from financing 1 17 50 65 19 8 (37) (34) Forex effect/others 000011000 Change in cash 13 16 (23) 16 17 9 2 13 Free cash flow 8 11 (40) (35) 2 17 36 44 Source: FactSet, Daiwa forecasts
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Financial summary continued …
Balance sheet (SGDm) As at 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Cash & short-term investment 71 87 64 79 95 104 106 120 Inventory 6 7 91011111112 Accounts receivable 5 8 9 10 9 10 10 10 Other current assets 24 46 43 49 53 58 63 69 Total current assets 107 149 126 148 169 183 191 210 Fixed assets 73 89 157 226 221 212 203 193 Goodwill & intangibles 99988777 Other non-current assets 15 16 65 86 119 138 138 138 Total assets 204 262 356 468 516 541 539 548 Short-term debt 11 24 46 30 76 58 54 53 Accounts payable 18 23 24 26 25 26 26 27 Other current liabilities 83 104 136 157 162 156 159 162 Total current liabilities 112 151 206 213 263 240 240 242 Long-term debt 8 15 51 138 121 158 136 116 Other non-current liabilities 9 10 9 13 16 16 16 16 Total liabilities 129 177 265 364 400 414 392 374 Share capital 33 33 33 33 33 33 33 33 Reserves/R.E./others 35 45 49 61 69 77 92 112 Shareholders' equity 69 78 83 94 103 111 125 146 Minority interests 7 7 81013172229 Total equity & liabilities 204 262 356 468 516 541 539 548 EV 272 277 357 412 430 443 422 394 Net debt/(cash) (52) (48) 32 89 102 112 84 49 BVPS (SGD) 0.244 0.278 0.294 0.334 0.364 0.392 0.444 0.516
Key ratios (%) Year to 31 Dec 2010 2011 2012 2013 2014 2015E 2016E 2017E Sales (YoY) 22.9 20.8 22.3 19.9 9.9 8.0 10.4 10.5 EBITDA (YoY) 15.8 8.4 20.0 25.5 13.8 15.1 22.5 16.3 Operating profit (YoY) 1.9 2.6 9.6 23.1 8.7 11.5 49.0 26.7 Net profit (YoY) 1.6 2.9 3.5 13.3 (10.3) 1.1 53.2 30.1 Core EPS (fully-diluted) (YoY) 1.4 2.8 3.6 13.3 (10.4) 1.1 53.2 30.1 Gross-profit margin 54.6 54.7 54.0 53.0 52.7 53.7 54.1 54.3 EBITDA margin 12.6 11.3 11.1 11.6 12.0 12.8 14.2 15.0 Operating-profit margin 5.5 4.6 4.2 4.3 4.2 4.4 5.9 6.8 Net profit margin 3.7 3.2 2.7 2.5 2.1 1.9 2.7 3.2 ROAE 17.4 15.8 15.0 15.4 12.4 11.6 16.0 18.1 ROAA 6.0 5.0 3.9 3.3 2.5 2.3 3.5 4.5 ROCE 18.8 15.5 11.9 10.0 8.5 8.5 12.2 15.4 ROIC 47.7 38.4 16.2 10.4 8.5 8.5 12.3 16.2 Net debt to equity n.a. n.a. 39.0 94.8 99.9 101.3 67.2 33.7 Effective tax rate 33.1 31.4 30.0 27.9 29.6 30.0 30.0 30.0 Accounts receivable (days) 6.0 6.5 6.8 6.4 6.0 5.5 5.0 4.5 Current ratio (x) 1.0 1.0 0.6 0.7 0.6 0.8 0.8 0.9 Net interest cover (x) 487.2 n.a. n.a. 16.9 14.9 11.0 15.0 23.7 Net dividend payout 24.9 36.4 30.4 37.2 34.7 34.3 22.4 17.2 Free cash flow yield 2.7 3.5 n.a. n.a. 0.7 5.4 11.4 13.9 Source: FactSet, Daiwa forecasts
Company profile BreadTalk Group Limited is a food and beverage company with 3 business segments: bakeries, restaurants and food courts. Founded in April 2000 by Mr. George Quek, BreadTalk launched its signature Pork Floss bun in Singapore. Today, BreadTalk has a presence in 17 countries around the world, with 932 outlets for its 10 brands, as at 30 June 2015.
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BreadTalk: 2014 revenue breakdown by market Rest of the world Hong Kong 6.8% 11.4% Comfort food Singapore 50.2% We think recent negative press has been Mainland China the reason for BreadTalk’s share price 31.6% underperformance YTD. However, we think investors should look beyond this Source: Company and focus on its core business of serving the masses through its 3 businesses under BreadTalk manufactures and sells bread, drinks and 10 brands, across 932 outlets. Asian food such as mee siam in its bakery outlets. As at 30 June 2015, it had 837 bakery stores worldwide, with 33% of them directly owned and the remainder run Company background under franchise agreements. From its franchise agreements, BreadTalk earns an initial franchise fee, from the sale of raw materials (eg, bread dough) to the BreadTalk Group Limited is a F&B company with 3 franchisees and it also gets a percentage of their business segments: 1) bakeries (50% of 2014 revenue), revenue. 2) restaurant (22%), and 3) food courts (28%). It launched its first outlet in Singapore in April 2000. BreadTalk was operating 33 restaurants as at 30 June Today, it has a presence in 17 countries around the 2015 for its Din Tai Fung, Sanpoutei and RamenPlay world, and has more than 900 outlets to cater to its 10 brands. The restaurants are run as either joint ventures brands. Geographically, Singapore accounted for half (RamenPlay and Sanpoutei) or franchise agreements of its revenue in 2014, Mainland China (32%), Hong (Din Tai Fung). Kong (11%) and 7% was generated from the rest of the world. BreadTalk operates 62 food courts under its Food
BreadTalk: 2014 revenue breakdown by business Republic brand. It rents food-court space from a shopping mall’s landlord, carves it up into individual stalls and leases it out to food-operating tenants. It Food court income earns the difference between the rent paid and 28.0% received, as well as a percentage of revenue generated by tenants. Bakery operations 49.9% Share price underperformance
BreadTalk’s share price has underperformed the FSSTI Restaurant and the average of its local consumer peers by 16% and sales 22.2% 24 % YTD, respectively. We think 3 negative news
Source: Company incidents in 2015 were the main reason for the share price weakness. However, we think this is just noise as BreadTalk’s fundamentals (revenue and EBITDA margin) have not been adversely impacted by the negative news flow.
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BreadTalk’s share price performance vs FSSTI and consumer BreadTalk: quarterly EBITDA margin (%) peers 16% 140 15%
14% 120 13%
100 12%
11% 80 10%
60 9% Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 8% BreadTalk FSSTI QAF
ThaiBev Sheng Siong Japan Food 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 Soup Restaurant Super group Source: Company Source: Bloomberg Note: Rebased to 100 as of 31 December 2014 Management said that the narrower EBITDA margin for 1H15 (vs. 4Q14) was due to a one-off charge of We note that BreadTalk’s 1Q-2Q15 revenue was SGD1.5m for the closure of 2 food courts, on the back positive YoY, up 8.6% and 10.7% YoY, respectively. In of changes in landlord and poor performance. We do fact, the YoY growth signals the reverse of a not expect this to happen again, and forecast a 3pp downtrend, which appears to have bottomed out in expansion in its EBITDA margin to 15% over 2014-17, 4Q14. Thus, we think that its revenue trajectory has not driven by it rationalising its underperforming raised any alarm bells so far. Over the 2014-17 period, RamenPlay restaurants. we expect further revenue growth, at a CAGR of 9.6%, driven largely by new outlet openings for its bakery and food-court segments. Negative press: a year best
BreadTalk: quarterly revenue (SGDm) and YoY growth (%) forgotten so far 180 30% 160 In 2015, BreadTalk has been in the press for all the 25% 140 wrong reasons. In our conversations with management, 120 20% they have expressed their regrets over the Lee Kuan 100 Yew bun fiasco and unintended misrepresentation of 15% 80 its soy milk as being freshly prepared in house. 60 10% Management has apologised to the public via the press 40 5% and taken remedial steps to rectify both situations. In 20 our opinion, management has made the best out of the 0 0% situation and we believe it will closely monitor its
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 operating processes to prevent such incidents from Revenue YoY growth happening again. Source: Company Lee Kuan Yew bun fiasco Despite a contraction in the quarterly EBITDA margin, After the passing of Singapore’s founding Prime from 13.7% for 4Q14 to 11.6% for 2Q15, we note that Minister, the late Mr. Lee Kuan Yew, on 23 March the EBITDA margin for 1H15, at 11.8%, was above the 2015, BreadTalk created a bun to commemorate the 11.5% for 1H14. Also, we notice a general upward trend event. The bun was called “Lee bu kai ni” (loosely in the quarterly EBITDA margin since 1Q12, with 4Q translating into “can’t leave you”) and was a play on being the strongest quarter seasonally. Mr. Lee’s surname in Putonghua.
BreadTalk said that the proceeds of the bun’s sales, estimated at SGD30,000, would be given to charity. However, the move was criticised by Singaporeans and BreadTalk promptly stopped selling the bun. To make amends, BreadTalk issued an apology on its Facebook page and donated SGD30,000 to the charity out of its own pocket.
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“Freshly prepared” soy milk It also said that staff are not allowed to alter validity Until recently, BreadTalk sold 350ml bottles of soy dates and such processes are closely monitored and milk, which it labelled “freshly prepared”, at its bakery recorded to prevent lapses. outlets in Singapore. On 3 August 2015, one of BreadTalk’s staff was photographed pouring ready- made soy milk from cartons of Yeo’s into the bottles. A Revenue growth driven by new 1 litre carton of Yeo’s costs SGD1.50 at supermarkets, stores and favourable macro while BreadTalk sold its bottles for SGD1.80 each. trends Customers were irate about the price hike and felt misled, thinking the soy milk had been freshly made in BreadTalk’s revenue registered a CAGR of 19.1% over house. On 4 August, BreadTalk temporarily stopped 2009-2014. We expect this to continue and forecast a selling its bottled soy milk. 9.6% revenue CAGR over 2014-17 for 2 reasons: 1) new
store openings, and 2) more people eating out in BreadTalk has apologised for the incident and clarified Singapore. that it did not intent to mislead its customers and should have been clearer on its labels. The bottles were BreadTalk: Revenue (SGDm) and YoY growth (%) used to package fresh fruit juice for sale. Apart from 900 100% the bottles, BreadTalk sells soy milk via dispensing 800 90% machines in 22 of its outlets. BreadTalk is looking to 700 80% put dispensing machines in other stores following this 600 70% 60% incident. 500 50% 400 40% On 22 August 2015, The Straits Times reported that 300 30% BreadTalk would give away 50,000 of its signature 200 20% pork-floss buns to the public and donate SGD50,000 to 100 10% the Community Chest to make amends. Additionally, 0 0%
BreadTalk also promised not to engage in unfair 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E practices going forward and signed a Voluntary Revenue YoY growth (RHS)
Compliance Agreement (VCA) with the Consumer Source: Company, Daiwa forecasts Associate of Singapore (CASE). The VCA enables CASE to apply for a court injunction ordering any such New stores in the pipeline practice be stopped in the future. BreadTalk could be held in contempt of court if it does not comply with the We forecast 189 new outlets to open (a 20% rise from order. We think the move should aid in rebuilding trust 30 June 2015) in 2H15-17, mainly in BreadTalk’s with its customers. bakery and food-court segments. Since the end of 2010, BreadTalk’s store count has doubled to 932, as at 30 Management said the company has an agreement with June 2015, with its franchised bakery outlets openings Yeo’s to sell its beverages at its outlets. A check with accounting for 75% of new stores opened. Yeo’s came up with the same answer. BreadTalk: number of outlets
1,200 80 Cooking oil reused 73 1,000 67 44 In August 2015, a correspondent from an investigative 63 40 58 36 TV show, Shenzhen TV, claimed that a BreadTalk outlet 800 34 47 41 in Shenzhen, China, reused its cooking oil and replaced 697 600 37 30 652 expiration labels on condiments. The correspondent, 547 602 32 26 479 disguised as an employee, recorded behind-the-scenes 400 33 21 384 290 footage of the bakery’s operations using a hidden 8 238 camera. The footage was aired on an episode of 200 182 225 258 270 280 290 299 Shenzhen Fazhi Shikong on 12 August 2015. 119 157 181 0 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Direct-owned bakeries Franchise bakeries Restaurant Food Atrium BreadTalk has denied allegations of improper food- handling practices and highlighted inaccuracies Source: Company, Daiwa forecasts portrayed by the programme. Management claims that the oil used for frying doughnuts, its only deep-fried product, needs to be changed every 3 days, but the outlet staff would normally change it after 1 or 2 days. - 8 - Consumer Staples / Singapore BREAD SP 9 September 2015
We expect BreadTalk to open 179 new bakery stores in BreadTalk: Total franchise income (SGDm) and YoY growth 2015-17, with 84% under franchise. The number of (%) BreadTalk’s bakery stores recorded a 22.1% CAGR, to 60 100%
817 outlets as at the end of 2014, up from 301 stores at 50 80% the end of 2009. The increase was driven by a rise in 40 the number of franchisees, which more than tripled 60% during this period from 182 outlets to 547 stores. 30 40% 20 Management aims to have 70% of its total bakery 20% outlets operating under franchise agreements within 10 the next 3 years. As at 30 June 2015, 67% of them were 0 0% being managed by franchisees. The ratio has been 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 increasing since 2006, when it was evenly split. Within 2015E 2016E 2017E Total franchise income YoY growth (RHS) China, franchised stores account for 80% of BreadTalk’s bakery outlets (405). For 1H15, BreadTalk Source: Company, Daiwa forecasts had a net 20 store-count increase in bakery outlets, BreadTalk: number of franchised bakery outlets and total with 70% of them opened by franchisees. franchise income per outlet (SGD ’000) 800 130 BreadTalk’s bakery outlets: directly owned vs. franchise 700 100% 120 600 110 80% 500 48% 56% 57% 59% 60% 60% 62% 400 100 63% 65% 67% 68% 69% 70% 60% 300 90 200 40% 80 100 52% 20% 44% 43% 41% 40% 40% 38% 0 70 37% 35% 33% 32% 31% 30% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 2015E 2016E 2017E No. of franchise outlets Total franchise income per outlet (RHS)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015E 2016E 2017E Source: Company, Daiwa forecasts Direct owned Franchise
Source: Company, Daiwa forecasts and estimates We expect the company’s food-court business to hit 80 outlets by the end of 2017. As at 30 June 2015, it had We view management’s decision to grow its franchise 62 outlets, close to double the 32 outlets it had at the outlets positively, as it provides recurring income with end of 2010. little overheads. BreadTalk earns an initial franchise fee when setting up a new outlet. Thereafter, it earns a We are positive on the food-court business given the percentage of revenue from its franchisee and sells raw low risk it presents. BreadTalk rents the space from materials to its franchisee. This enables BreadTalk to landlords and subleases it to tenants. It earns the expand its presence quickly, leveraging on its difference between the rent paid to the landlord and franchisees’ manpower and ground knowledge. the rent it charges to the tenants. BreadTalk also earns a percentage of the revenue that tenants generate. Bakery franchise revenue has seen positive YoY growth BreadTalk’s only real operating cost is for utilities and since 2005, at an average of 39.3%. However, we note staff expenses for the food court, such as cleaners. The that revenue per franchisee outlet fell by 28.8% over risk it faces in this business is the default on rent owed 2008-14. We think this is due to a 3-fold increase in the and an inability to lease out stall space. number of franchisee outlets, from 182 to 547 between 2009 and 2014. Looking ahead, we expect sales per We note that revenue per food court has been relatively franchise outlet to improve by 4.1% over 2014-17E, as stable over the past 5 years, at about SGD2.7m per its stores exit their gestation period. annum. We expect a slight increase over 2015-17, at 4.1%, as half of its outlets (32 out of 62) that were opened in the past 3 years will exit their gestation period of 3 years over this period. Given the stability of sales per outlet, we think the earnings growth path for its food-court business would be the addition of new stores, rather than SSS growth.
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Food-court store count and revenue per outlet (SGD '000) China: urban population as a % of the total (%) No. of food courts SGD ’000 60 90 3,500 80 3,000 50 70 2,500 60 40 50 2,000 40 1,500 30 30 1,000 20 20 10 500 0 0 10 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 0 Number of outlets Revenue per outlet 1960 1970 1980 1990 2000 2010 Source: Company, Daiwa forecasts Source: The World Bank
BreadTalk acts as a business partner with its tenants, Singapore: a nation of foodies not just a landlord. The company has developed a We expect BreadTalk to benefit from the rise in stable of 8 to 10 tenants that provide a range of food to spending on F&B (as a percentage of overall spending) most of its food courts. When BreadTalk opens in a in Singapore, which accounted for 50% of 2014 new location in Singapore, it offers tenants a chance to revenue. According to the nation’s Department of operate one of the stalls in the new food court. This Statistics, people are eating out more often, with way, BreadTalk saves time sourcing tenants and allows spending on food serving services (FSS) making up the tenants it does have to expand along with the 16% of average monthly household expenditure for company. 2012/13, up from 14% for 2002/03.
Management said that tenants are keen on such an Singapore: average monthly household expenditure (SGD) arrangement as they are able to focus on running the 5,000 day-to-day operations of the stalls, while BreadTalk handles shared services, such as cleaning and accounts. 4,000 Although BreadTalk is able to replicate this concept 3,000 overseas, it has found that it is not able to export the 3,960 entire portfolio mix as some markets are not as 3,217 receptive to certain cuisines for cultural reasons. 2,000 2,886 Management said it intends to open 4 more outlets in 2H15, with a focus on Shanghai. 1,000 466 592 764 0 Management also said its new outlets would be in 2002/03 2007/08 2012/13 locations that have a mix of residential and commercial Food serving services Others buildings nearby. It said that for its existing stores in Source: Singapore's Department of Statistics pure residential or commercial spots, sales tend to decline on weekdays (for pure residential) or weekends We think the rise in food spending outside of the home (for pure commercial). Positioning its new outlets in an can be attributed to 2 factors: 1) higher incomes, and 2) area with a mix of both property segments would be people working longer hours. beneficial in ensuring a steady flow of customers throughout the week. Singaporeans’ spending power has improved over the past 10 years, as the median monthly household We expect BreadTalk to benefit from China’s higher income has seen a 6% CAGR from 2003-14, hitting urbanisation rate, as management said that new store SGD8,292/ household. We believe the positive rise in openings in the country would be biased towards the household incomes is sustainable given the Tier-1 cities such as Shanghai and Beijing. According to government’s pro-economic growth policies and new The World Bank, China’s urbanisation rate rose from policies that we expect to be implemented in the next 49.2% in 2010 to 54.4% in 2014. In March 2014, few years to keep the economy competitive. China’s State Council and the Communist Party Central Committee released the “National New-type Urbanization Plan” with a target to raise the country’s urbanisation rate to 60% by 2020.
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Singapore: median (monthly) household income (SGD) Rising dough 9,000 8,292 Bread consumption has increased in 2 of BreadTalk’s 7,872 8,000 7,566 key markets: Singapore and China. 7,037 7,000 6,342 6,100 6,006 6,000 5,362 Singapore. The average daily consumption of bread 4,952 4,612 4,831 tripled from 66.4g in 2004 to 171.4g in 2010 in 5,000 4,552 Singapore, according to a National Nutrition Survey 4,000 conducted by the Health Promotion Board. 3,000 2,000 China. In an August 2014 press release by market 1,000 research company Canadean, China’s bakery and 0 cereals market is the largest worldwide in terms of 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 volume. Canadean expects the market to be worth Source: CEIC Data USD47bn by 2018, making it the second-most valuable, after only the US. According to the Ministry of Manpower, Singaporeans worked an average of 2,392 hours annually in 2014. According to Shanghai consultancy firm Daxue This is a 4.6% rise since 2011. This places Singapore as Consulting, China consumed about 5kg of baked goods one of the cities where people work a lot, with Hong per capita a year in 2013, more than double since Kong the closest peer at 2,344 hours (2011 data). We 2000. We think 3 factors played major roles in this think that people who spend hours in the office want increase: 1) the influence of Western cultures, 2) the convenience of eating out in restaurants, instead of urbanisation, and 3) rising spending power. cooking at home.
Annual average number of hours worked in 2011 Doing more with less 2,500 2,344 2,287 2,193 2,144 We expect BreadTalk’s EBITDA margin to improve by 2,000 1,706 1,703 1,698 1,650 3pp to 15% over 2015-17E, driven by: 1) ongoing store 1,475 1,406 1,382 1,500 rationalisation, and 2) cost controls.
1,000 BreadTalk’s EBITDA margin narrowed by 2.3pp to 500 11.1% for 2012, from 13.4% for 2009, before rebounding to 12% for 2014. The contraction was due 0 mainly to the underperformance of its RamenPlay US UK
Japan restaurant stores, start-up costs/gestation periods France Taiwan Australia Germany
Singapore relating to its rapid store expansion plans and cost Hong Kong Netherlands South Korea Source: Federal Reserve Economic Data pressure for its food, labour and rental expenses.
Singapore: average number of hours worked per year We attribute the EBITDA margin expansion for 2012- 14 to the restructuring of its restaurant business in 2,420 2,402 2,402 2,392 2,400 2013, when it started closing its underperforming 2,380 RamenPlay outlets, thus improving the sales per outlet 2,360 for its direct-owned bakery and restaurant outlets. We 2,340 expect both trends to continue in 2015-17. 2,320 2,287 2,287 2,300 2,277 2,280 2,260 2,240 2,220 2,200 2009 2010 2011 2012 2013 2014
Source: Federal Reserve Economic Data, Singapore's Ministry of Manpower Note: For 2012-14, data calculated over 52 weeks
- 11 - Consumer Staples / Singapore BREAD SP 9 September 2015
BreadTalk: EBITDA margin (%) BreadTalk: restaurant outlets by brand 16% 45 15.0% 40 15% 14.2% 35 30 14% 13.4% 25 12.8% 13% 12.6% 20 12.0% 15 11.6% 12% 11.3% 11.1% 10 5 11% 0 10% 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E Din Tai Fung RamenPlay Carl's Jr. Sanpoutei
Source: Company, Daiwa forecasts Source: Company, Daiwa Note: Carl’s Jr. outlets were injected into a JV formed between BreadTalk and Carl Kascher Enterprises in March 2014 Store rationalisation We expect the EBITDA margin to expand as BreadTalk Over 2005-09, we note that restaurant sales per outlet reduces the number of underperforming RamenPlay ranged from SGD4.6m-5.6m. However, this figure was outlets over the next 3 years as their leases come up for between SGD3.3m and SGD3.9m over 2010-14. We renewal. In 2013, BreadTalk had 15 RamenPlay outlets. believe the introduction of RamenPlay in 2010 was the BreadTalk closed 4 in 2014. In 1H15, it closed another. key reason for the drag on sales per outlet. As at 30 June 2015, there were 10 RamenPlay outlets RamenPlay’s addition to BreadTalk’s stable of brands left. We think BreadTalk could potentially convert the in 2010 also coincides with a fall in the restaurant shop space and use it for its better-performing brands: segment’s operating margin. Din Tai Fung or Sanpoutei. Restaurant revenue per outlet (SGD '000) and EBITDA margin RamenPlay, a Japanese-styled noodle concept, was (%) BreadTalk’s brainchild that it introduced in 2010. 6,000 30% However, the company said RamenPlay is now its worst-performing brand within its restaurant portfolio. 5,000 25% Management said the revenue of its Sanpoutei outlets, 4,000 20% a Japanese ramen concept introduced in 2014, is double that of RamenPlay. 3,000 15% 2,000 10% We think the pedigree of Din Tai Fung (a 1 Michelin Star Chinese restaurant and ranked as 1 of the World’s 1,000 5% Top-10 best restaurants by the New York Times) and 0 0% its consistent food quality are 2 reasons that the crowds 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Revenue per outlet EBITDA margin continue to frequent it. We do not see any discernible differences in price between the 2 restaurant chains. Source: Company Based on our on-the-ground checks, Din Tai Fung has longer queues at its outlets in Singapore than In spite of this, the EBITDA margin has been RamenPlay. increasing since 2010. We believe this is due to Din Tai Fung’s stronger performance. We note that the restaurant business has been 1 of the key drivers of BreadTalk’s overall EBITDA margin expansion since 2012, particularly in 2013-14, when the bakery and food-court businesses saw declining EBITDA margins.
- 12 - Consumer Staples / Singapore BREAD SP 9 September 2015
BreadTalk: EBITDA margin across brands (%) Additionally, management said that its cost-control 20% measures, such as fine-tuning its worker overtime schedule and improving its procurement process, have 15% helped to reduce operating expenses.
10% In terms of rent, BreadTalk is able to negotiate on either 1 of 2 things with landlords: 1) lower rates, or 2) 5% high-traffic store positioning. It is common to find a range of its brands located within the same shopping 0% mall, which improves its bargaining power. 2010 2011 2012 2013 2014 Overall Bakery operations BreadTalk: 4 of its brands are in this mall in Singapore
Restaurant operations Food court operations Source: Company
With the winding down of the RamenPlay outlets, we expect a further increase in BreadTalk’s EBITDA margin. If BreadTalk converts its existing RamenPlay outlets into Din Tai Fung or Sanpoutei outlets, we expect stronger sales per outlet, leading to improved margins.
In 1H15, the restaurant segment saw SSSG of 13.9% YoY and a 5.7pp YoY increase in the EBITDA margin to
17.5%. Management said this was driven by Din Tai Source: Company Fung. In Singapore, Din Tai Fung saw 6-7% YoY SSSG, while Thailand’s outlets posted a high-double digit percentage SSSG, albeit from a low base. Opening doors for other brands
Cost controls Apart from growing its existing stable of brands, BreadTalk has a relatively stable cost structure, BreadTalk is looking to bring new brands into encompassing 3 key components: raw materials (about Singapore. On 17 March 2014, BreadTalk introduced 30% of total expenses), labour (28%) and operating Sanpoutei, a Japanese ramen brand, in Holland leases (22%). Village, Singapore. Founded in 1967, Sanpoutei offers authentic Niigata-style ramen in a clear fish stock- BreadTalk: cost structure based broth, in contrast to the more popular pork-bone
100% broth versions offered by other ramen establishments in Singapore. On 15 August 2014, BreadTalk opened its 80% second Sanpoutei outlet in Shaw House, Orchard Road.
29% 28% 29% 28% 27% 28% 27% 27% 26% Management said the Sanpoutei business has been 60% brisk at its 2 outlets so far.
40% 22% 21% 21% 21% 22% 22% 22% 22% 22% BreadTalk: Sanpoutei’s Shaw House outlet
20% 30% 30% 30% 30% 31% 31% 31% 31% 31%
0% 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Raw material Operating lease Labour Depreciation and Amortisation Others
Source: Company, Daiwa forecasts
With an improvement in SSS due to the continued store rationalisation that we expect over 2015-17, we expect labour costs (as a percentage of total expenses) to reduce accordingly, as BreadTalk is able to achieve higher sales per staff. Source: Company
- 13 - Consumer Staples / Singapore BREAD SP 9 September 2015
BreadTalk taps its experience and network to take In Singapore, all of the properties that BreadTalk has a Singaporean brands overseas. In August 2012, stake in are managed by Perennial Real Estate BreadTalk entered into a 30:70 joint venture with Holdings Limited. Perennial manages Chinatown Point JUMBO Group, a Singapore-grown F&B player, to and Capitol Singapore shopping malls as well, and operate restaurants under the JUMBO Seafood brand BreadTalk has a presence in both. in agreed provinces in China. In December 2013, the JV unveiled its franchise outlet in Shanghai, with the We think investors could be concerned with second outlet opening in the same city in July 2015. BreadTalk’s property investments given the company’s leverage position (1.2x net debt-to-equity ratio as at 30 Founded in 1987, JUMBO operates restaurants that June 2015, and we forecast it to fall to 0.3x for 2017). offer a range of cuisines, from seafood restaurants to Management said its property investments are hot-pots and pork-rib soup. It is best known for its chili opportunistic in nature; hence, it is unable to provide and black pepper crab and was awarded the Best Chilli any guidance on future investments. Crab in the Tiger Beer Chilli Crab Championship Series 2006. As at 31 August 2015, JUMBO seafood had 7 However, we note that BreadTalk’s interest coverage outlets in Singapore, 5 and Shanghai, and 2 in China. ratio was 6x for 2014. Also, management said its all-in borrowing costs were less than 2%. In 2014, the JUMBO Seafood restaurant in Shanghai, in Raffles City company registered a positive FCF, a reversal from its negative FCF for 2012 and 2013 (due to capex relating to the construction of its headquarters building). We do not expect any significant capex needs moving forward. Hence, we think BreadTalk should be able to service its loans and pay off its debt as needed.
We forecast SGD163.4m in capital expenditure from 2015-17, lower compared to 2012-14, as BreadTalk incurred higher capex over 2009-14 to build its international headquarters and acquired investment properties. We do not expect any major capex in 2015-17.
Source: JUMBO Seafood website Competition in China Forging relationships via its Within China, 2 large Chinese bakery companies, property investments Christine and Holiland, stand out with more 1,000 outlets each. The rise in the consumption of bread in BreadTalk has been investing in property in Singapore China has attracted other foreign bakery chains. The and China since November 2009. In Singapore, South Korean chain Paris Baguette now has 123 stores BreadTalk owns stakes in TripleOne Somerset, in China, while the Taiwanese chain 85°C Bakery Café Chijimes and Katong 112. In China, BreadTalk owns a has 417. 4% interest in Phase 1 and 2 of the Beijing Tongzhou District. The bakery chains (including BreadTalk) tend to operate within similar provinces such as Beijing, BreadTalk: property investments Shanghai, Zhejiang and Jiangsu because they attract Date Property Stake Cost (SGDm) Market the middle class. Thus, competition is rife. 9-Jan-14 TripleOne Somerset 5.3% 17.5 Singapore 15-Apr-13 Phase 2 of Beijing Tongzhou District 4.0% 14.5 Beijing, China 1-Oct-12 Phase 1 of Beijing Tongzhou District 4.0% 20.1 Beijing, China Holiland was founded domestically in 1992. It has 4-Nov-11 Chijimes 29.0% 18 Singapore nearly 200 branches across 50 cities in China. Apart 18-Nov-09 Katong 112 7.0% 14 Singapore from cakes and bread, Holiland also sells rice Source: Company, St James Holdings, Daiwa forecasts dumplings, mooncakes and coffee drinks. Ganso, with its origins in Taiwan, set up shop in Apart from diversifying its income sources, investing in Shanghai in 1993. It has more than 260 outlets in 53 property enables BreadTalk to foster relationships with cities. landlords, which means its bargaining power extends beyond that single building. This gives it more access than peers to prime locations in up-and-coming malls owned by these landlords. - 14 - Consumer Staples / Singapore BREAD SP 9 September 2015
85°C Bakery Café entered Shanghai on 6 March 2007. Management said its all-in financing cost was about 2% Its products are positioned with lower to middle-range a year currently. The company is able to tap on loans prices, catering to the tastes of the younger generation. from Bank of China for its expansion in China. The Paul is an authentic French bakery. It is also one of the loans have an interest rate of 0.9-1.0%, which is lower pricier bakeries in China. Ilu is known for its multi- than BreadTalk’s overall financing cost. Additionally, grain bread, targeting consumers seeking healthier the company has not used its medium-term-note bread. program as its interest rate of 4-5% is higher than its existing interest rate. Paris Baguette is a subsidiary of SPC Group, Korea’s leading food-product company. Established in 1986, Hence, we do not see any financing risk in terms of Paris Baguette produces classic French bread and availability of credit or high interest rate at the confectionery products. About 85% of Paris Baguette’s moment. stores are in tier-1 cities, especially Beijing and Shanghai. Assumptions Cleanliness is a key factor to address in China for the F&B companies. China has been plagued with food We forecast a 26.3% net profit CAGR for 2014-17, scandals over the years. Notably, the nation was rocked which we think will be driven by a 9.6% CAGR in by one of its largest-ever food safety scandals in 2008, revenue and 3pp expansion in the EBITDA margin, when industrial chemical melamine was found in dairy driven by the expansion plans for its bakery and food- products, killing at least 6 babies and making 300,000 court segments, and the ongoing culling of its non- people ill. Recently, Shanghai Husi Food Co. Ltd was performing restaurants. found supplying products containing meat that was out of date to McDonald’s, KFC, Pizza Hut, Starbucks and Number of outlets Burger King. The company was forced to shut down We forecast the company to open 189 new outlets (a operations in July 2014. 20% rise from 30 June 2015) in 2H15-17, mainly for the bakery and food-court businesses. Since the end of 2010, BreadTalk’s store count has doubled to 932, as at Financial position 30 June 2015, with its franchised bakery outlets accounting for 75% of new stores opened. Increasing leverage under control BreadTalk: number of outlets 1,200 As at 30 June 2015, BreadTalk’s net debt-to-equity 80 73 ratio was 1.2x. Before 2012, the company was in a net 1,000 67 44 63 40 cash position. The increase in debt has been used 58 36 mainly to finance the construction of its international 800 34 47 41 headquarters building in Singapore, which was 697 600 37 30 652 547 602 completed in June 2013, and to fund its outlet 32 26 479 expansion plans. Management has said it is 400 33 21 384 290 comfortable with a net debt-to-equity ratio of 1-1.5x. 8 238 200 182 225 258 270 280 290 299 119 157 181 BreadTalk: net debt (SGDm) and net debt-to-equity ratio (x) 0 120 1.5 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 100 Direct-owned bakeries Franchise bakeries Restaurant Food Atrium
80 1.0 Source: Company, Daiwa forecasts 60 0.5 40 Management said it will open new stores selectively (it 20 expect a 10% a year increase, as it is looking to focus on 0.0 0 improving same store sales.
(20) (0.5) (40) Revenue per outlet (60) (1.0) We forecast a 1.9-11.7% CAGR for overall revenue per 2010 2011 2012 2013 2014 direct-owned outlet over the 2014-17 period. This will Net debt Net debt to equity be driven mainly by higher SSS in the restaurant Source: Company, Daiwa forecasts segment as it continues to rationalise its underperforming RamenPlay outlets.
- 15 - Consumer Staples / Singapore BREAD SP 9 September 2015
BreadTalk: revenue per outlet by business (SGD ’000) Working capital cycle 6,000 We expect BreadTalk to maintain its negative working 5,000 capital cycle over 2015-17, albeit with a shorter number of days, as we expect payable days to fall faster than 4,000 inventory and receivable days. It has had a negative 3,000 working capital cycle since 2004. This is usually seen in F&B companies as their revenue is collected upon 2,000 delivery of goods or from the credit card companies
1,000 within 30 days of a transaction being made.
0 BreadTalk: working capital cycle (days) 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 60 Bakery operations Restaurant Food Atrium
Source: Company, Daiwa forecasts 40
EBITDA margin expansion 20 We forecast a 3pp expansion in the EBITDA margin to 0 15% over 2014-17. BreadTalk has a relatively stable cost structure with 3 key components: raw materials (about (20) 30% of total expenses), labour (28%) and operating (40) leases (22%). We forecast a gradual decline in labour as 2010 2011 2012 2013 2014 2015E 2016E 2017E a percentage of total expenses (from 28% for 2014 to Inventory days Receivable days 26% for 2017) as we expect BreadTalk to achieve better Payable days WCC days
SSS from the rationalisation of the RamenPlay outlets. Source: Company, Daiwa forecasts
BreadTalk: EBITDA margin (%) We expect inventory days to range from 12-14 days 16% over 2015-17, below the 15-18 days over 2010-14. We 15.0% attribute this mainly to better inventory management 15% 14.2% as the company improves its procurement system,
14% 13.4% leading to it holding its inventory for less time on its 12.8% balance sheet. 13% 12.6% 12.0% 11.6% We expect receivable days to range from 4.5-5.5 days 12% 11.3% 11.1% for 2015-17, continuing its declining trend from 7 days 11% for 2012 to 6 days for 2014. This is due, in our view to better bargaining power with its franchisees as 10% BreadTalk increases its scale. 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Source: Company, Daiwa forecasts We expect payable days to narrow to 28-32 days for 2015-17. BreadTalk’s payable days have fallen from 55 BreadTalk: cost structure days for 2011 to 34 days for 2014. This is due to shorter 100% credit terms with its landlords for its restaurant and food-court businesses, which have expanded over the 80% years. 29% 28% 29% 28% 27% 28% 27% 27% 26% 60% Dividend policy and capex 22% 22% 22% 22% 22% 40% 22% 21% 21% 21% We forecast a constant dividend of SGD0.015 per
20% share for 2015-17E, as we do not expect any major 30% 30% 30% 30% 31% 31% 31% 31% 31% capex that would require the company to hold onto its 0% cash during this period. BreadTalk has paid out 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E dividends for the past 9 financial years, but does not Raw material Operating lease Labour Depreciation and Amortisation Others have a fixed dividend policy.
Source: Company, Daiwa forecasts
- 16 - Consumer Staples / Singapore BREAD SP 9 September 2015
BreadTalk: dividend per share (SGD cents) and dividend On our 2015 DPS estimate, BreadTalk offers a 1.3% payout ratio (%) dividend yield. 2 36.4% 37.3% 40% 34.6% 34.3% 30.4% BreadTalk: 12-month-forward PER (x)
24.9% 30% 12M forward PER (x ) 22.4% 40 1 17.2% 20% 35 +2 stdev 30 10% 25 +1 stdev Mean 20 1 1.5 1.3 1.8 1.5 1.5 1.5 1.5 0 0% 15 -1 stdev 2010 2011 2012 2013 2014 2015E 2016E 2017E 10 Dividends per share (cents) Dividend payout ratio -2 stdev 5 Source: Company, Daiwa forecasts 0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 We forecast SGD163.4m in capex over 2015-17, lower Source: Bloomberg compared to 2012-14 as BreadTalk incurred higher capex to build its international headquarters and Our 2015E EPS is 7.2% below consensus, which we acquired investment properties (2009-14). We do not think is due to our lower sales projection vs. peers. expect any major capex in 2015-17. However, our 2016E EPS is 6.9% ahead, as we expect a stronger EBITDA margin expansion during that period. BreadTalk: capex (SGDm)
120 BreadTalk: Earnings per share (SGD cents)
100 10 8.72 9 80 8 6.70 7 60 6 4.83 5 4.27 4.33 4.44 40 3.95 4.01 4.12 4 20 3 2 0 1 2010 2011 2012 2013 2014 2015E 2016E 2017E 0 Source: Company, Daiwa forecasts 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Source: Bloomberg Valuation SWOT analysis We initiate coverage on BreadTalk with a Buy (1) rating and a 12-month target price of SGD1.31 based on 2016E PER of 19.6x (BreadTalk’s past-5-year PER. We Strengths expect its sales to revert back to levels seen then, when Brand management. BreadTalk has cultivated a restaurant sales were doing better). This represents suite of recognisable brands, evident from the string of upside of 16.4% to current share price levels. awards it has won over the years. This range of brands gives BreadTalk a competitive edge over peers, in our Our PER multiple is 23% above BreadTalk’s Singapore view. peers but in line with the regional F&B players, on the Bloomberg consensus forecasts. We think this is Product innovation. BreadTalk has an in-house justifiable given its stronger 2016E EPS growth of 53% R&D team to constantly invent original flavours to vs. peers (7.9% to 43%). refresh its offerings and attract customers.
Our target price is 15.5% below the Bloomberg Outlet network. BreadTalk has a presence in 17 consensus. We think this is due to the more aggressive territories, with a focus on its key markets in valuation multiple used by other brokerage houses. Singapore, Hong Kong and China. This enables BreadTalk to realise scale economies, in our view.
- 17 - Consumer Staples / Singapore BREAD SP 9 September 2015
Weaknesses expanding through franchisees as shop renovation Homogenous product. There are many bakeries costs are borne by the franchisees. This enables and restaurants in its key markets offering products BreadTalk to broaden its brands’ reach without taxing similar to BreadTalk. This may make it difficult for its cash reserves. BreadTalk to differentiate itself with products other than its signature items such as its Pork “Flosss” bun New brands: inbound and outbound. BreadTalk and Din Tai Fung’s “xiao long bao”. can assist domestic brands expand outside of Singapore by leveraging its contacts and experience Susceptible to consumers’ changing taste buds. overseas. Similarly, BreadTalk can bring international Although BreadTalk’s R&D team rolls out new brands into Singapore. In our view, both avenues will creations regularly, customers may prefer other have the potential to generate new sources of income flavours, not offered by BreadTalk, and choose to buy for BreadTalk. from its competitors instead. Threats Price hike. Given the array of products to choose Stiff competition. BreadTalk faces stiff competition from, customer stickiness may not be high. This with many peers in all its 3 businesses. This could implies that BreadTalk is unable to hike prices lower its bargaining power with consumers. significantly without a potential dip in sales volume. In a Business Times article, published 17 December 2012, Public scandals. Year-to-date, BreadTalk has been in management said that it only made 4 price adjustments the press thrice for all the wrong reasons. These may over 2000-end-2012. have a potentially negative impact on the public’s perception of BreadTalk’s brand and its products, and Opportunities cause them to stop buying from its outlets, resulting in Geographical expansion. Of its 3 key markets, we lower sales. believe BreadTalk’s next target for business/revenue growth will be Thailand. Through a joint venture with Low intellectual property protection. BreadTalk Minor International, one of its substantial has a dedicated R&D team that works on creating new shareholders, BreadTalk plans to increase the number flavours. However, it may be easier and less time- of its bakery outlets there to 100 in 5 years, up from 22 consuming for competitors to replicate BreadTalk’s as at end-2014, by leveraging Minor’s on-the-ground new creations once they are introduced to the market. expertise. This could result in BreadTalk’s products losing their novelty once a similar product is offered by peers. Low risk expansion through franchisee. BreadTalk takes on a minimal capital outlay when Valuations: peer comparison Actual Market cap Current price PER (x) PBR (x) ROE Div Yield EPS Growth (%) Company Ticker (USDm) (l.c.) Rating Actual FY15E FY16E Actual FY15E (%) FY15E (%) FY15E FY16E BREADTALK GROUP* BREAD SP EQUITY 229 1.13 BUY 25.7 25.8 16.8 3.1 2.9 12.4% 1.3% 1.1% 53.2%
Singapore Consumer SUPER GROUP LTD* SUPER SP Equity 604 0.755 Underperform 14.2 14.4 13.6 1.7 1.6 14.3% 3.5% -6.9% 6.0% THAI BEVERAGE THBEV SP Equity 12,166 0.695 NR 19.6 18.6 17.0 4.2 4.0 22.2% 3.5% 8.8% 9.4% SHENG SIONG GROUP* SSG SP Equity 883 0.835 Outperform 24.2 20.2 17.1 5.2 4.9 24.7% 4.2% 23.4% 18.7% Average 19.3 17.7 15.9 3.7 3.5 20.4% 3.7% Regional F&B CAFE DE CORAL 341 HK Equity 1,909 24.95 NR 24.3 21.1 18.7 4.0 3.8 16.0% 3.5% 17.9% 13.1% WANT WANT CHINA* 151 HK Equity 11,504 6.73 Buy 19.6 17.7 15.4 5.4 4.9 31.1% 2.8% 4.8% 15.1% JOLLIBEE FOODS JFC PM Equity 4,225 185.9 NR 35.8 34.0 29.1 6.8 6.4 21.6% 1.2% 9.2% 16.9% BERJAYA FOOD BHD BFD MK Equity 181 2.08 NR 3.5 17.6 13.9 1.9 1.7 14.8% 2.9% -79.2% 27.1% JUBILANT FOODWOR JUBI IN Equity 1,564 1523.8 NR 93.2 60.6 42.3 16.0 13.0 24.1% 0.2% 54.0% 43.0% MAX'S GROUP INC MAXS PM Equity 465 19.68 NR 80.2 22.0 19.3 5.2 3.3 -1.7% n.a. 706.7%14.3% LUYE PHARMA GROU 2186 HK Equity 3,008 6.76 NR 28.6 23.0 18.6 3.9 3.2 18.1% 0.0% 24.3% 23.9% MK RESTAURANTS** M TB Equity 1,461 58 Buy 24.3 21.2 19.1 4.1 3.9 16.2% 3.3% 22.2% 11.1% AJISEN CHINA HOL 538 HK Equity 422 2.91 NR 12.7 12.5 11.1 1.0 0.9 8.3% 5.1% -5.1% 12.9% Average 35.8 25.5 20.8 5.4 4.6 16.0% 2.4%
Simple average (excl. BREAD) 31.7 23.6 19.6 5.0 4.3 17.5% 2.6% Source: Bloomberg, *Daiwa forecasts, **Thanachart forecasts Note: based on 8 September 2015 closing prices
- 18 - Consumer Staples / Singapore BREAD SP 9 September 2015
Risks to our call Company background
Safety scandals BreadTalk Group Limited is a food and beverage Consumers have an array of food options available. If company with 3 business segments: 1) bakery (50% of they do not trust the safety of food offered by one 2014 sales), 2) restaurant (22%) and 3) food court vendor, they have alternatives to choose from. This (28%). Geographically, Singapore contributed half of applies to BreadTalk as well, and indeed stands as a its revenue in 2014, Mainland China accounted for primary risk to our call. In August 2015, a claim was (32%), Hong Kong (11%) and 7% came from the rest of made that BreadTalk’s Shenzhen outlet reused its the world. cooking oil beyond the safety period and relabelled the BreadTalk: 2014 revenue breakdown by business expiry date of its condiments. BreadTalk refuted these claims, but such an incident could potentially drive Food court consumers away from its outlets. income 28.0% Unable to find suitable locations for stores If BreadTalk cannot find appropriate locations to open Bakery operations new stores, its sales growth could be limited to 49.9% improving same store sales growth at existing outlets. Our assumption includes new-store openings over the forecast period of 2015-17. There may be a downside Restaurant surprise in reported revenue if BreadTalk opens fewer sales 22.2% stores than we expect, and this stands as a primary risk to our call. Source: Company
Raw material cost BreadTalk: 2014 revenue breakdown by geography Rest of the Raw material cost is a key cost item and is estimated to world make up about 30% of BreadTalk’s total expenses. Hong Kong 6.8% BreadTalk usually passes on the cost to its customers 11.4% immediately. However, if BreadTalk is unable to do so, its margins might be eroded. This will lead to downward pressure on its net profit. Singapore 50.2% Rental expenses Mainland China BreadTalk renews the rental lease of its outlets every 3 31.6% to 7 years. However, if it is unable to obtain a favourable rental rate, it may have to pass on the cost to its customers or forgo the space. If it is unable to Source: Company pass on the cost, it could narrow margins. If it has to give up the space, it will lose sales from that outlet. Started in April 2000 by Mr. George Quek, BreadTalk launched its signature Pork “Flosss” bun, a bun brushed with mayonnaise and topped with pork floss, at its first outlet in at Bugis Junction, Singapore. Today, BreadTalk has a presence in 17 territories around the world with more than 900 outlets across 10 brands.
BreadTalk’s international headquarters is in Tai Seng, Singapore. Built for SGD67m in 2012-13, the building houses BreadTalk’s corporate office, research and development laboratories, training academy, warehousing facilities and central kitchens.
- 19 - Consumer Staples / Singapore BREAD SP 9 September 2015
BreadTalk has won several awards since it was BreadTalk brand portfolio established. In 2014, it became the first Singapore Brand Description company to win an award at the World Retail Awards Bakeries Started in April 2000, BreadTalk is a bakery that offers in Paris. local Asian flavours such as its signature Pork Floss bun. Its outlets are all open plan, allowing customers to BreadTalk: key awards won watch chefs at work. Bread Society is an artisan bakery offering dine-in Year Organisation Award options. It was launched in 2009. Its products are more 2014 World Retail Awards 2014 Growth Market Retailer of the Year European-inspired. Its cafe serves soup, Japanese 2012 Brand Finance One of the Top 100 Singapore Brands curry rice and desserts, such as salted caramel lava
2012 World Brand Laboratory Five Star Diamond Award chocolate cake. 2009 SPBA Toast Box is the Overall Winner of Promising Brands Toast Box is a cafe concept developed in October 2009 Brand Finance One of the Top 100 Singapore Brands 2005. Its outlets are designed to resemble local 2008 SPBA Food Republic is the Overall Winner of Promising Brands Nanyang coffee shops of the 1960/70s. It serves food 2006 World Brand Laboratory Five Star Diamond Brand Award and Diamond Awards such as mee siam, nasi lemak and soft-boiled eggs, as well as drinks such as coffee and tea.
2005 SPBA Gold Award and CitiBusiness Regional Brand Award 2004 SPBA Silver Award The Icing Room is a cake shop chain that started in 2004 Hong Kong Design Centre Design for Asia Award 2008. It distinguishes itself by offering a “Design-It- 2003 SPBA Distinctive Brand Award Yourself” personalised cake-decoration service, allowing customers to design their own cakes.
Source: Company Thye Moh Chan sells traditional handcrafted Teochew BreadTalk: corporate history confectionary. BreadTalk relaunched the 70-year old brand in 2012.
Year Description 2000 1st BreadTalk outlet opens at Bugis Junction, Singapore, on 1 July 2000 Restaurants Launches its signature “Flosss” bun Din Tai Fung is a 1 Michelin Star Chinese restaurant 2001 Receives more than 1,000 international franchise enquiries for BreadTalk and ranked as 1 of the World’s top-10 best restaurants by the New York Times. It is known for its famous BreadTalk Group Limited is listed on the Singapore Exchange’s Sesdaq (now known 2003 signature xiao long bao (steamed pork dumplings) and as Catalist board) steamed chicken soup. First overseas outlet opens in Jakarta, Indonesia RamenPlay serves authentic Japanese ramen in its Sets up its China headquarters and opens its first China outlet in Shanghai restaurants, which have upbeat and lively interiors. In 2004 Opens its inaugural store in Philippines 2009, BreadTalk collaborated with Japanese Sanpou
Brings in Din Tai Fung Singapore, ranked one of the World’s Top Ten Best Co. Ltd to introduce Ramenplay. Restaurants by The New York Times Founded in 1967, Sanpoutei offers authentic Niigata- 2007 Opens 100th store worldwide in Shanghai, China style ramen in a clear fish stock-based broth, in First Food Republic opens in Kuala Lumpur’s Pavilion Shopping Centre in Malaysia contrast to the more popular pork-bone broth version 2008 Opens inaugural stores in Oman offered by other ramen establishments in Singapore. Launches The Icing Room for young adults to engage in Design-It-Yourself cakes BreadTalk launched its first Sanpoutei outlet in Singapore in 2014. Launches new BreadTalk design concept store at CityLink Mall, Singapore Carl’s Jr. is a popular burger chain in the west of the Signs 12-country Middle East Master Franchise agreement with Bahraini partner, Pan 2009 US and is known for being the first within the Quick Arabian Gourmet Service Restaurant industry to charboil meat patties BreadTalk Group Limited transfer of listing to the SGX Mainboard on 11 June 2009 over an open flame. BreadTalk partnered with Aspac Launches Bread Society at ION Orchard, Singapore F&B International Pte Ltd to bring Carl’s Jr. into China.
Partners with Japanese Sanpou Group to launch RamenPlay Food court Obtains franchise to operate Carl’s Jr. in China Food Republic is a food court that offers local hawker 2011 Ground-breaking ceremony for its international headquarters in Singapore and street food at affordable prices in an air- Introduces the Generation 4 concept of BreadTalk in Shanghai with an original line-up conditioned setting. BreadTalk entered the business by 2012 of novel products acquiring China’s 大食代 (dashidai) chain in 2005. Launch of heritage Thye Moh Chan confectionary Source: Company 2014 BreadTalk has a presence in 17 territories worldwide Source: Company Management said it spreads its supplier concentration risk for any particular raw material. In Singapore, it has 3 suppliers to provide its flour needs, while its overseas’ outlets source their raw materials locally.
- 20 - Consumer Staples / Singapore BREAD SP 9 September 2015
BreadTalk: Generation 2 outlet Bakery business
BreadTalk manufactures and sells bread, drinks and Asian food such as mee siam at its bakery outlets under the BreadTalk, Bread Society, Toast Box, The Icing Room and Thye Moh Chan brands. As at 30 June 2015, it had 837 stores worldwide, with 33% direct-owned and the remainder under franchise agreements.
About half of the stores are in Mainland China, with the rest spread across other markets such as Singapore. Source: Company
BreadTalk directly manages its bakery outlets in Generation 3 (2008-11): BreadTalk adopted sleeker Singapore, Malaysia, Hong Kong, Taiwan, Shanghai displays to showcase its products. and Beijing. Stores in other countries and the other
China cities are franchised. The lease duration for its BreadTalk: Generation 3 outlet direct-owned bakery outlets is usually 3 years.
Previously, BreadTalk directly owned its outlets in Thailand, but it restructured the stores under a 50:50 venture with its major shareholder, Minor Investments, an F&B player in Thailand. Minor Investments runs the day-to-day operations of the bakery outlets.
According to its website, BreadTalk sells 1 of its signature Floss buns every 10 seconds worldwide, with Source: Company over 100m Pork Floss buns sold to date. BreadTalk makes available for sale a regular range of buns daily, Generation 4 (2012 to present): BreadTalk has opted and it introduces new flavours to mark annual holidays for a more rustic feel to coincide with the change in its such as the Lunar New Year or Christmas. menu, which now offers healthier options.
The BreadTalk brand has been through 4 generations BreadTalk: Generation 4 outlet of store designs since inception.
Generation 1 (2000-04): Outlets pioneered the use of full glass open kitchens in Singapore. The stores were furnished with stainless steel and white display tops, finished with sleek and clean lines.
BreadTalk: Generation 1 outlet Source: Company
Bread Society is BreadTalk’s artisan bakery arm that draws inspiration from Europe. It has a dine-in concept, unlike BreadTalk outlets, and offers Japanese curry rice and desserts such as salted caramel lava chocolate cake among other things.
Source: Company
Generation 2 (2004-08): The look of outlets was changed to bronze stainless steel.
- 21 - Consumer Staples / Singapore BREAD SP 9 September 2015
Bread Society outlet An Icing Room outlet
Source: Company
BreadTalk relaunched Thye Moh Chan in 2012, a 70- Source: Company year old brand that sells traditional handcrafted Teochew confections. Introduced in October 2005, Toast Box is a cafe designed to resemble local coffee shops of the Thye Moh Chan outlet 1960/70s. It serves Asian food such as mee siam.
ToastBox outlet in Shaw Centre, Singapore
Source: Company
Franchise income BreadTalk earns a royalty fee and percentage of sales (franchisee income) and ingredient sales (sales to
Source: Company franchisees) from its franchise agreements.
The Icing Room is a cake shop chain that started in BreadTalk’s bakery franchisee agreement has 2 2008, distinguishing itself as offering a “Design-It- components: development and operating rights. Under Yourself” personalised cake-decoration service, development rights, franchisees’ performance, such as allowing customers to design their own cakes. number of store openings and sales targets, are tracked to ensure they abide by the terms set out in the franchise agreement. Operating rights give the franchisee the right to use the BreadTalk brand for a period of time, usually 5-10 years.
In the event a franchisee is unable to fulfil its performance targets, BreadTalk can withdraw the development rights but can choose to allow the franchisee to retain the operating rights. This allows the franchisee to continue operating the BreadTalk brand at its existing outlets, but cancels its ability to open new outlets. Management said this is a safety mechanism to protect the company, but noted that it has never been used. - 22 - Consumer Staples / Singapore BREAD SP 9 September 2015
BreadTalk seeks out fellow entrepreneurs with a In 2015, the company renewed its franchise agreement common goal when it comes to franchising. In with Din Tai Fung for another 10 years. Management Indonesia, it partnered with Mr Johnny Andrean, who said that it is the company’s best-performing franchise, formerly ran a successful hair salon chain. As at 31 thus mitigating the risk of Din Tai Fung retracting the December 2013, Indonesia had 121 bakery outlets. licence.
Apart from deepening its roots in its existing markets, Din Tai Fung outlet BreadTalk is constantly looking to extend its presence in new markets. In October 2014, BreadTalk opened its first bakery outlet in Phnom Penh, Cambodia. It also entered Qatar and Saudi Arabia in 2014 with the BreadTalk bakery brand.
Constantly reinventing itself BreadTalk has an in-house R&D team that develops new bread and flavours to refresh its product offerings and cater to the ever-evolving consumer tastes. On any given day, its bakery outlets display around 60 bread options, comprising regulars such as its signature Pork Source: Company Floss bun and new products. In 2014, BreadTalk introduced healthier choices, such as Chia Seed Toast In 2010,BreadTalk created its own restaurant brand, and Pumpkin Toast, which have no trans-fats and are RamenPlay, via a joint venture with a Japanese low in cholesterol. company. RamenPlay offers Japanese-styled noodles, rice and hot pots. However, management said it has been rationalising its RamenPlay stores and will Restaurants continue to do so. It has 11 outlets, comprising 7 in Singapore and 4 in Shanghai. BreadTalk’s current portfolio of restaurant brands includes Din Tai Fung, RamenPlay and Sanpoutei. As RamenPlay outlet at 30 June 2015, BreadTalk had 33 restaurants located in Singapore (27), Thailand (2) and Shanghai, China (4).
The restaurants are held under joint ventures (RamenPlay and Sanpoutei) or franchise agreements (Din Tai Fung). About 85% of its restaurants are in Singapore, with the remainder in Mainland China and Thailand. The lease duration for its restaurants is usually 3 years. The outlets are located in upmarket shopping malls such as Paragon and Marina Bay Link Mall in
Singapore. In 2H15, management expects to open 2 Source: Company new restaurants. We think they will be either Din Tai Fung or Sanpoutei outlets. In 2014, BreadTalk opened 2 Sanpoutei outlets in Singapore. Founded in 1967, Sanpoutei serves Breadtalk entered the restaurant business in 2003 by authentic Niigata-style ramen in a clear fish stock- acquiring the franchise rights to bring the Taiwanese based broth, in contrast to the more popular pork-bone Din Tai Fung brand into Singapore. Din Tai Fung is a broth version offered by other ramen establishments in Chinese restaurant famous for its dumplings. Singapore. Management shared that business has been Management shared that Din Tai Fung is its best- brisk at its 2 outlets so far. performing restaurant brand to date. BreadTalk also has Din Tai Fung’s franchise rights for Thailand. It has 21 outlets in total, of which 19 are in Singapore and 2 in Thailand. Management said more than 80% of its restaurant sales are generated by Din Tai Fung.
- 23 - Consumer Staples / Singapore BREAD SP 9 September 2015
Sanpoutei’s Holland Village outlet Thailand and 2 in Malaysia. The typical food court measures 10,000-15,000 sq ft and houses 10-11 stalls. BreadTalk will consider opening a smaller food court (4,000-5,000 sq ft) if the location has strong foot traffic. And management said it would consider bringing in 3 popular stalls, and run it like a cafe/restaurant, with service charges and taxes.
BreadTalk entered the food-court business in 2005, when it acquired China’s Topwin Investment Holding Pte Ltd for SGD11m. At the time of the acquisition, Topwin owned and operated 13 food courts under the
“Megabite” brand (Dashidai, 大食代). Megabite was the Source: Company first international food court concept introduced in Shanghai in 1997, before expanding to Beijing, Tianjin, BreadTalk used to own a Carl’s Jr. franchise in China. Nanning and Shenyang. In 2009, it opened the first Carl’s Jr. outlet in Shanghai. However in March 2014, BreadTalk In October 2005, BreadTalk launched its first Food restructured its Carl’s Jr. business by converting it into Republic outlet in Wisma Atria, Singapore. The 900- a joint venture-franchise model, with BreadTalk taking seat food court offered a blend of hawker fare and a 40% stake and Carl Karcher Enterprises, owner of the mini-restaurants across 23,000 sq ft. This was followed Carl’s Jr. fast-food chain, holding the remainder. by the opening of a second outlet in Vivocity, Following the restructuring exercise, the US partner Singapore, in 2006. In late-2005, Food Republic has taken the lead in spearheading the expansion in unveiled its first food court in Hong Kong at the Mainland China, while BreadTalk will provide support Cityplaza mall in Tai Koo Shing. with its knowledge of the local F&B scene. As at 31 December 2014, Carl’s Jr. had 4 outlets in Shanghai Food Republic outlet and Nanjing.
Carl’s Jr. outlet in China
Source: Company
Source: Company Dashidai (大食代 ) food court in Taichung, Taiwan
Food-court business
BreadTalk operated 62 food courts under the Food Republic brand as at 30 June 2015. It rents food-court space from the landlords of shopping malls, carves it up into individual stalls, and leases it out to food operating tenants. It earns the difference between the rent paid and received, as well as a percentage of sales generated by the tenants.
As at 30 June 2015, it had 32 food courts in China, 14
in Singapore, 8 in Hong Kong, 3 in Taiwan, 3 in Source: Wikipedia
- 24 - Consumer Staples / Singapore BREAD SP 9 September 2015
The lease duration for its food courts is usually 6 years, with an option to extend for another 3. When Shareholding structure negotiating for the extension, BreadTalk sometimes considers renewing its leases for another 6 years, BreadTalk has 2 substantial shareholders: 1) Mr instead of 3. George Quek and 2) Primacy Investment, a wholly owned subsidiary of Minor International (MINT TB Equity, Non-rated) in Thailand. BreadTalk sold a 2.6% Management stake in the company to Primacy in early 2013. Primacy increased its interest to 11% by buying shares in the Mr George Quek – Chairman and founder. Mr open market before the end of 2013. MINT is involved Quek started his F&B business in Taiwan in 1982 and in hotels, restaurants and consumer products such as grew it into a chain of 21 outlets across Southeast Asia fashion and cosmetics. before setting up Topwin Singapore and Megabite China in 1992 and 1996, respectively. In 2000, he In August 2014, BreadTalk established a joint-venture started the bakery business with BreadTalk Pte Ltd. Mr company with MINT to operate its bakery business in Quek continues to drive the group’s strategic direction Thailand. BreadTalk had 22 bakeries, 2 restaurants and and development. 3 food courts in Thailand as at end-2014. MINT aims to have 100 bakery outlets by 2020. Ms Katherine Lee Lih Leng – Deputy Chairman. Ms Lee oversees the group’s research and development BreadTalk: Shareholding structure as of 8 September 2015 function, pioneering new product ideas and brand concepts. Ms Lee has more than 20 years of experience in the F&B industry. She was the finance director of Mr. George Quek Primacy Investment Other public Topwin Singapore prior to her current appointment. 52.6% 12.0% 35.4%
Mr Oh Eng Lock – Group CEO. Mr Oh was appointed group CEO on 1 January 2011. He oversees the group’s global operations with a focus on strategic BreadTalk planning, investments and business development and regional expansion. Prior to his appointment, Mr Oh Source: Bloomberg was a regional managing director with Merrill Lynch Asia Pacific Ltd in Hong Kong.
Mr Chan Ying Jian – Group CFO. Mr Chan was appointed group CFO on 10 June 2015, after joining the group in August 2014 as a financial controller of the food-court division. He is responsible for the group’s finance, legal and risk functions. Prior to joining the group, Mr Chan was a vice president in the equity research team of J.P. Morgan Securities Singapore.
- 25 - Consumer Staples / Singapore BREAD SP 9 September 2015
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Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.
Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s] is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s)] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.
The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months.
Disclosure of investment ratings Rating Percentage of total Buy* 60.4% Hold** 26.0% Sell*** 13.6% Source: Daiwa Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 June 2015. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings.
Additional information may be available upon request.
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If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.
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Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association
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