Company Guide BreadTalk Group Ltd

Version 7 | Bloomberg: BREAD SP | Reuters: BRET.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 7 Nov 2018

HOLD Hit by London expenses Last Traded Price ( 5 Nov 2018): S$0.925 (STI : 3,060.62) Price Target 12-mth: S$0.98 (6% upside) (Prev S$1.07) Maintain HOLD, with lower TP of S$0.98. We maintain our neutral stance on BreadTalk as we turn more conservative on Analyst earnings going forward. We cut our FY19-20F earnings Alfie YEO +65 6682 3717 [email protected] Andy SIM, CFA +65 6682 3718 [email protected] estimates for a more moderate growth outlook from higher- than-expected operating cost sturcture for the opening of Din What’s New Tai Fung UK and slower-than-expected turnaround of its bakery • 3Q18 earnings below estimates on higher than business. The stock now trades at 30.0x FY19F PE, around the expected opex for Din Tai Fung London average of its past four years’ mean PE valuation. We see earnings growth, albeit slower, driven by a better mix of higher • Mixed performance from bakery business with margin food atrium and restaurant businesses. restructuring still ongoing • Cut FY19-20F earnings by 12-13% Where we differ. Our earnings forecasts are below consensus as we factor in higher interest costs from increased borrowings in • Maintain HOLD, TP S$0.98 FY18F and a higher opex outlook. BreadTalk has increased its

loans this year ahead of interest rate to increase cash holdings for future capex and other plans. We have factored in higher Price Relative interest cost in our earnings forecast in addition to higher S$ Relative Index

1.4 218 1.3 startup costs for Din Tai Fung UK. 198 1.2 1.1 178 1.0 158 0.9 0.8 138 Potential catalyst. We see potential for special dividends if 0.7 118 0.6 98 0.5 Perennial sells AXA Tower. BreadTalk could pay c.4.5 Scts in 0.4 78 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 special dividend upon the sale of AXA Tower based on our BreadTalk Group Ltd (LHS) Relative STI (RHS) estimates.

Forecasts and Valuation Valuation: FY Dec (S$m) 2017A 2018F 2019F 2020F Our TP of S$0.98 is derived from a sum-of-parts (SOTP) Revenue 600 609 646 681 EBITDA 76.6 79.3 85.7 91.9 valuation. On a per share basis, we value its retail business at Pre-tax Profit 41.0 29.6 37.3 39.8 S$0.68 on 22x FY19F PE, investment properties at S$0.34 Net Profit 21.8 12.3 17.4 18.5 based on market value, and net debt at S$0.047 per share. Net Pft (Pre Ex.) 13.8 15.4 17.4 18.5 Net Pft Gth (Pre-ex) (%) 60.3 11.5 12.5 6.7 EPS (S cts) 3.88 2.18 3.08 3.29 Key Risks to Our View: EPS Pre Ex. (S cts) 2.46 2.74 3.08 3.29 Operational risks include food safety and licences as well as EPS Gth Pre Ex (%) 60 11 12 7 negative publicity. In extreme cases, food operating licences Diluted EPS (S cts) 3.87 2.17 3.07 3.27 can be revoked for lapse in food safety procedures. Negative Net DPS (S cts) 2.75 2.03 2.50 2.50 BV Per Share (S cts) 23.0 31.2 31.8 32.6 publicity may lead to weaker demand and poorer marketability PE (X) 23.8 42.3 30.0 28.1 when selling its franchises as the public and franchisees would PE Pre Ex. (X) 37.6 33.7 30.0 28.1 shy away from their association with BreadTalk. P/Cash Flow (X) 6.2 10.1 6.8 8.2 EV/EBITDA (X) 7.5 7.4 6.7 6.2 At A Glance Net Div Yield (%) 3.0 2.2 2.7 2.7 P/Book Value (X) 4.0 3.0 2.9 2.8 Issued Capital (m shrs) 563 Net Debt/Equity (X) 0.2 0.2 0.0 0.0 Mkt. Cap (S$m/US$m) 521 / 379 ROAE (%) 16.7 8.1 9.8 10.2 Major Shareholders (%) Earnings Rev (%): (26) (12) (13) Meng Tong Quek 34.0 Consensus EPS (S cts): 3.00 3.30 3.90 Lih Leng Lee 18.600 Other Broker Recs: B: 0 S: 1 H: 1 Primacy Investment Ltd 14.0 18.6 Free Float (%) 33.4 Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P 3m Avg. Daily Val (US$m) 14.00.27 ICB Industry : Consumer Services / General Retailers

ed: CK / sa: DT, CW, CS Company Guide

BreadTalk Group Ltd

WHAT’S NEW 3Q18 results

3Q18 below estimates on higher opex: BreadTalk reported Higher interest cost and lower JV/associate contribution: 3Q18 earnings of S$2.7m (-32.2% y-o-y), below expectations Borrowings increased slightly from S$221m in 2Q18 to on higher-than-expected opex and lower operating margins. S$236m this quarter. Net interest costs were much higher at Group revenue came in at S$158m (+2.2% y-o-y) with S$1.9m due to additional loans taken up in 2Q18 to beef up headline gross profit margin at 56.5%, both of which were in cash balances ahead of rising interest rates. JV/associates line with expectations. losses stood at S$0.3m, lower than expected, affected by the performances of Jumbo , Carl’s Jr and Revenue in line with drag from Bakery offset by decent BreadTalk-Minor . Restaurants and Food Atrium performances: Revenue growth of +2.2% y-o-y was largely led by Restaurants (+10% y-o-y, London Din Tai Fung a drag, anticipate more expenses in the S$38.7m), Food Atrium (+5% y-o-y, S$40.9m) and 4orth coming quarter: Both the Bakery and Food Atrium divisions division (+115% y-o-y, S$3.9m). Bakery declined by 5.2% y- are performing according to expectations. The closure of non- o-y to S$73m due to lower revenue from direct operated performing Bakery outlets has yielded lower revenue but stores in Shanghai, Beijing and , as well as lower better operating margins, while Food Atrium has shown franchise revenue from China, mitigated by stronger revenue growth in both revenue and operating profit. This quarter’s from direct operated stores in Singapore and higher drag came mainly from the drag of pre-opening expenses international franchise revenue. The addition of two new Din from the Din Tai Fung London outlet. With opening slated for Tai Fung outlets in Singapore and Thailand contributed to the 4Q18, we expect to see more of such expenses in the coming 10% revenue growth of the Restaurant division. Food quarter but to a lesser extent, as most of the pre-opening Atrium’s growth was driven by positive same store sales costs for London have been incurred in 3Q18. growth (undisclosed) and two new outlets in Shenzhen and Cut FY19-20F earnings by 12-13%: We lower our FY18F Hong Kong, offset by one closure in Hangzhou. earnings by 26% to reflect the current 3Q18’s disappointing Higher-than-expected opex a drag on EBIT and operating numbers into our forecast. In addition of factoring in higher- margins: Headline operating profit dropped by 9% y-o-y to than-expected opex for 3Q18, we have also factored in more S$9.45m, affected by one-off pre-opening expenses for Din pre-opening expenses into 4Q18, which led to our earnings Tai Fung London. While the operating profit of Bakery and cut. Our growth rate for FY19F/20F is also lowered slightly Food Atrium grew by a combined 41% y-o-y to S$7.4m, the from 15%/8% to 13%/7% in anticipation of its second operating profit for Restaurant Division was reduced to S$5m restaurant in the pipeline at Centre Point Building on (-26% y-o-y), attributed to expenses for the new London Tottenham Court Road in central London. This results in an outlet. The reduction in non-performing Bakery stores led to earnings reduction of 12-13% for FY19-20F as well. better operating margins, as with Food Atrium which also Maintain HOLD, lower TP to S$0.98: Our per share SOTP saw better margins on better operating leverage. valuation is now S$0.98, comprising a lower S$0.68 for the F&B business that is based on 22x core earnings, net debt of 4.7 Scts, and S$0.34 of properties. Maintain HOLD on limited

upside.

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Company Guide

BreadTalk Group Ltd

Quarterly / Interim Income Statement (S$m) FY Dec 3Q2017 2Q2018 3Q2018 % chg yoy % chg qoq

Revenue 154 149 158 2.3 5.9 Cost of Goods Sold (69.2) (65.6) (68.5) (0.9) 4.4 Gross Profit 84.9 83.2 89.1 5.0 7.1 Other Oper. (Exp)/Inc (74.7) (71.8) (79.7) 6.7 11.0 Operating Profit 10.2 11.4 9.45 (7.5) (17.1) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 - - Associates & JV Inc 0.0 (0.5) (0.3) nm nm Net Interest (Exp)/Inc (0.7) (1.2) (1.9) (171.1) (51.8) Exceptional Gain/(Loss) (0.7) (2.6) (0.2) 74.8 (93.6) Pre-tax Profit 8.85 7.03 7.07 (20.0) 0.7 Tax (2.9) (2.6) (3.2) 10.8 20.8 Minority Interest (2.2) (2.0) (1.2) 44.4 (38.4) Net Profit 3.81 2.44 2.70 (29.2) 10.7 Net profit bef Except. 4.46 5.02 2.86 (35.8) (43.0) EBITDA 20.8 20.1 20.0 (3.6) (0.5) Margins (%) Gross Margins 55.1 55.9 56.5 Opg Profit Margins 6.6 7.7 6.0 Net Profit Margins 2.5 1.6 1.7

Source of all data: Company, DBS Bank

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Company Guide

BreadTalk Group Ltd

Bakery outlets CRITICAL DATA POINTS TO WATCH 862 871 878 883 888 896.9 Critical Factors 768.8 Less aggressive store expansion to focus on driving higher operating 640.6 efficiencies and margin improvement. The focus is to raise efficiency 512.5 of its existing operations, lower operating costs, and expand margins. 384.4 Store openings till year-end will therefore not be aggressive. We see 256.3 FY19-20F operating margins improving at the group level, driven by a higher proportion of revenue from its higher-margin Restaurant and 128.1 0.0 Food Atrium businesses. 2016A 2017A 2018F 2019F 2020F

Driving margin improvement through cost efficiencies. Initiatives such Restaurant outlets as better demand planning, more efficient human resource planning, 44 44.9 42 and tighter cost controls have benefited operating margins. These 40 have led to lower food wastage, and reduction in unnecessary payroll 35.9 32 32 expenses. Management has also been spending less on capex, leading to some moderation in depreciation expenses going forward. 26.9 However, due to higher loans and interest costs, we now expect a 18.0 slower FY18F net margin expansion. 9.0 Non-performing legacy franchisees. We expect to see a stronger 0.0 franchisee base with less drag from non-performing accounts post 2016A 2017A 2018F 2019F 2020F restructuring of franchisee accounts. As franchise outlets have higher net margins, and lower direct operational risk, there is potential for Food court outlets Bakery margins to increase as well given that franchise revenue is 63.24 62 57 58 55 royalty income, recognised as a percentage of franchisee sales with 53 minimal costs to BreadTalk. We expect margins to increase when the 50.59 mix of franchise stores improve. Leverage on these bakery stores has kicked in since 4Q17, with higher operating profit seen continually 37.94 from lower revenues. 25.30

Changes to management personnel, tenant-mix and tenant quality 12.65 has enabled Food Atrium to turn profitable. The Food Atrium division 0.00 made a marked turnaround in FY17 after it closed non-performing 2016A 2017A 2018F 2019F 2020F outlets in China and in tier 2 cities the year before. It has also replaced China Food Atrium’s management team with new Total 983 994 personnel who made changes to tenant quality and tenant mix, 1003.9 951 956 973 leading to improvements in performance and occupancy at its China Food Atriums. It will focus on its Food Atrium operations in Beijing, 803.2

Shanghai, Shenzhen and Guangzhou where tables can turn more 602.4 frequently. Earnings recovery continues to be on track in FY18F, driven by better profitability and absence of depreciation when some 401.6 of its China outlets enter their second period. 200.8

New outlet in London this year. BreadTalk is opening new outlet in 0.0 London this year via a JV (where BreadTalk is the major shareholder) 2016A 2017A 2018F 2019F 2020F with Fairy Rise Development (Din Tai Fung franchise owner), Din Tai Fung , a UK partner and a Taiwanese individual. We also see Annual sales per outlet S$m 0.69 scope for more outlets in Thailand as there are currently only three 0.7 0.66 0.65 0.63 0.63 Din Tai Fung restaurants there. As restaurant margins are attractive, a better sales mix from the restaurant business would improve overall 0.6 profitability eventually. 0.4

0.3

0.1

0.0 2016A 2017A 2018F 2019F 2020F

Source: Company, DBS Bank

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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

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Company Guide

BreadTalk Group Ltd

Leverage & Asset Turnover (x) 1.3 Balance Sheet: 1.20 1.3 1.00

Cash business; balance sheet in net debt. As with all food 0.80 1.2 service companies, BreadTalk is a cash business. The business 0.60 1.2 generated S$65-90m of operating cashflows annually and 1.1 S$28-54m of positive free cashflows in the last three years. Net 0.40 debt as of end-September 2018 was about c.S$25m, equivalent 0.20 1.1 to approximately 4.5 Scts per share, or a net debt ratio of 0.12x. 0.00 1.0 2016A 2017A 2018F 2019F 2020F BreadTalk was in net cash till FY12 when it built its BreadTalk Gross Debt to Equity (LHS) Asset Turnover (RHS) IHQ. In FY13 when it opened its IHQ, net debt stood at S$89m. It recently issued S$100m of medium-term notes in 1Q18 due Capital Expenditure S$m 17 January 2023 at 4% coupon for general corporate purposes, 45.0 including refinancing of existing borrowings, and financing 40.0 35.0 capital expenditure and general working capital. 30.0 25.0 Share Price Drivers: 20.0 15.0 10.0 Changes to property holdings are likely to drive share price. 5.0 0.0 Valuations for BreadTalk re-rated to an all-time high when it 2016A 2017A 2018F 2019F 2020F moved into its IHQ in 2013. Similarly, when it sold 112 Katong Capital Expenditure (-) last year and declared special dividends, its share price re-rated ROE (%) as well. In 4Q16, BreadTalk announced the sale of 111 Somerset, which also lifted its share price in anticipation of 16.0% special dividends. We expect special dividends if and when AXA 14.0% 12.0% and/or CHIJMES is sold. The adoption of SFRS (I) 9 in 2Q18 10.0% which accounts for investment securities at fair value has led us 8.0% to increase our SOTP-based TP for the investment properties 6.0% component. 4.0%

2.0% Key Risks: 0.0% 2016A 2017A 2018F 2019F 2020F

Food safety and licences. As a restaurant operator, it is Forward PE Band (x) important to maintain food safety. Lapses would lead to (x) reputational risks and in extreme cases, food operation licences 43.9 could be revoked. +2sd: 40x 38.9 +1sd: 35.6x Negative publicity affects consumer confidence and the 33.9 marketability of its franchise. BreadTalk has had some negative Avg: 31.2x 28.9 publicity, especially in 2015 over food safety and food -1sd: 26.8x preparation procedures in Singapore and China. Incidents such 23.9 -2sd: 22.4x as these can generate negative response from the public which 18.9 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 could affect sales as well as the marketability of its franchise overseas. PB Band (x) (x) Company Background 4.7

4.2 BreadTalk Group is a Singapore-based food and beverage +2sd: 4.12x 3.7 (F&B) group engaged in the operations and franchising of +1sd: 3.56x 3.2 bakery/confectionery outlets, food courts and restaurants Avg: 3.01x across the region. BreadTalk’s portfolio currently has six brands 2.7 -1sd: 2.46x – BreadTalk, ToastBox, , Ramen Play, San Pou Tei 2.2 -2sd: 1.91x and Din Tai Fung. It operates over 900 outlets across 17 1.7 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 countries. Source: Company, DBS Bank

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Company Guide

BreadTalk Group Ltd

Key Assumptions FY Dec 2016A 2017A 2018F 2019F 2020F

Bakery outlets 862 871 878 883 888 Restaurant outlets 32.0 32.0 40.0 42.0 44.0 Food court outlets 57.0 53.0 55.0 58.0 62.0 Total 951 956 973 983 994 Annual sales per outlet 0.65 0.63 0.63 0.66 0.69 S$m Segmental Breakdown FY Dec 2016A 2017A 2018F 2019F 2020F

Revenues (S$m) Bakery operations 307 297 284 291 299 Restaurant sales 138 149 151 167 178 Food Atrium income 158 141 157 169 184 4orth 7.84 7.86 12.6 15.1 15.9 Others 4.73 4.62 4.43 4.73 4.73 Total 615 600 609 646 681 Operating profit (S$m) ( S$Bakerym) operations 11.5 9.63 8.05 8.44 8.66 Restaurant sales 23.1 24.4 22.9 25.0 26.7 Food Atrium income (7.0) 8.90 15.0 15.8 17.5 4orth (0.6) (0.3) 0.0 (0.3) 0.0 Others 5.61 (6.7) (4.7) (4.7) (4.7) Total 32.5 35.9 41.3 44.3 48.1 Operating profit (S$m) Margins Bakery operations (%) 3.7 3.2 2.8 2.9 2.9 Restaurant sales 16.8 16.4 15.2 15.0 15.0 Food Atrium income (4.4) 6.3 9.6 9.4 9.5 4orth (8.3) (4.2) (0.3) (2.0) 0.0 Others 118.6 (144.9) (106.5) (99.8) (99.8) Total 5.3 6.0 6.8 6.9 7.1

Income Statement (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F

Revenue 615 600 609 646 681 Cost of Goods Sold (278) (266) (266) (284) (298) Gross Profit 337 333 342 363 383 Other Opng (Exp)/Inc (305) (297) (301) (318) (335) Operating Profit 32.5 35.9 41.3 44.3 48.1 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc (0.8) 0.21 (1.2) 0.20 0.21 Net Interest (Exp)/Inc (4.8) (3.2) (7.4) (7.2) (8.6) Exceptional Gain/(Loss) 2.80 8.01 (3.1) 0.0 0.0 Pre-tax Profit 29.7 41.0 29.6 37.3 39.8 Tax (12.1) (11.0) (10.1) (11.2) (11.9) Minority Interest (6.2) (8.1) (7.2) (8.7) (9.3) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 11.4 21.8 12.3 17.4 18.5 Net Profit before Except. 8.63 13.8 15.4 17.4 18.5 EBITDA 80.0 76.6 79.3 85.7 91.9 Growth Revenue Gth (%) (1.5) (2.5) 1.5 6.2 5.4 EBITDA Gth (%) (1.1) (4.2) 3.5 8.0 7.3 Opg Profit Gth (%) (0.2) 10.5 14.9 7.3 8.7 Net Profit Gth (Pre-ex) (%) (29.2) 60.3 11.5 12.5 6.7 Margins & Ratio Gross Margins (%) 54.9 55.6 56.2 56.1 56.2 Opg Profit Margin (%) 5.3 6.0 6.8 6.9 7.1 Net Profit Margin (%) 1.9 3.6 2.0 2.7 2.7 ROAE (%) 8.8 16.7 8.1 9.8 10.2 ROA (%) 2.1 4.0 2.1 2.9 3.3 ROCE (%) 5.4 7.5 6.8 7.9 9.6 Div Payout Ratio (%) 94.7 70.8 93.1 81.1 76.0 Net Interest Cover (x) 6.8 11.3 5.6 6.1 5.6 Source: Company, DBS Bank

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Company Guide

BreadTalk Group Ltd

Quarterly / Interim Income Statement (S$m) FY Dec 3Q2017 4Q2017 1Q2018 2Q2018 3Q2018

Revenue 154 150 149 149 158 Cost of Goods Sold (69.2) (65.6) (65.4) (65.6) (68.5) Gross Profit 84.9 84.6 83.2 83.2 89.1 Other Oper. (Exp)/Inc (74.7) (73.8) (74.4) (71.8) (79.7) Operating Profit 10.2 10.8 8.73 11.4 9.45 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 0.0 0.07 0.02 (0.5) (0.3) Net Interest (Exp)/Inc (0.7) (0.7) (2.4) (1.2) (1.9) Exceptional Gain/(Loss) (0.7) 0.0 (0.4) (2.6) (0.2) Pre-tax Profit 8.85 10.2 5.99 7.03 7.07 Tax (2.9) (2.8) (2.4) (2.6) (3.2) Minority Interest (2.2) (2.2) (2.4) (2.0) (1.2) Net Profit 3.81 5.14 1.18 2.44 2.70 Net profit bef Except. 4.46 5.14 1.58 5.02 2.86 EBITDA 20.8 19.7 17.4 20.1 20.0

Growth Revenue Gth (%) 4.4 (2.5) (1.1) 0.2 5.9 EBITDA Gth (%) 6.8 (5.0) (11.5) 15.3 (0.5) Opg Profit Gth (%) 11.5 6.0 (19.4) 30.5 (17.1) Net Profit Gth (Pre-ex) (%) 30.8 15.4 (69.2) 217.1 (43.0) Margins Gross Margins (%) 55.1 56.3 56.0 55.9 56.5 Opg Profit Margins (%) 6.6 7.2 5.9 7.7 6.0 Net Profit Margins (%) 2.5 3.4 0.8 1.6 1.7

Balance Sheet (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F

Net Fixed Assets 181 169 170 170 166 Invts in Associates & JVs 35.3 36.7 35.6 35.8 36.0 Other LT Assets 106 121 175 175 174 Cash & ST Invts 138 154 187 99.2 109 Inventory 9.81 9.72 9.81 10.5 11.0 Debtors 57.5 52.0 55.5 59.0 62.2 Other Current Assets 6.43 8.70 8.70 8.70 8.70 Total Assets 534 552 642 557 567

ST Debt 31.5 57.1 90.9 15.9 15.9 Creditor 86.8 90.3 89.0 103 99.2 Other Current Liab 97.6 109 109 109 109 LT Debt 150 126 130 94.1 94.1 Other LT Liabilities 16.3 14.5 14.5 14.5 14.5 Shareholder’s Equity 132 129 176 179 183 Minority Interests 19.9 25.5 32.7 41.4 50.7 Total Cap. & Liab. 534 552 642 557 567

Non-Cash Wkg. Capital (111) (129) (124) (134) (127) Net Cash/(Debt) (43.5) (28.5) (33.7) (10.8) (1.3) Debtors Turn (avg days) 34.9 33.3 32.2 32.3 32.4 Creditors Turn (avg days) 144.1 143.1 144.1 144.5 144.8 Inventory Turn (avg days) 15.7 15.8 15.7 15.3 15.4 Asset Turnover (x) 1.1 1.1 1.0 1.1 1.2 Current Ratio (x) 1.0 0.9 0.9 0.8 0.8 Quick Ratio (x) 0.9 0.8 0.8 0.7 0.8 Net Debt/Equity (X) 0.3 0.2 0.2 0.0 0.0 Net Debt/Equity ex MI (X) 0.3 0.2 0.2 0.1 0.0 Capex to Debt (%) 17.6 20.0 18.1 36.4 36.4 Z-Score (X) 2.6 2.6 2.6 2.6 2.6

Source: Company, DBS Bank

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Company Guide

BreadTalk Group Ltd

Cash Flow Statement (S$m) FY Dec 2016A 2017A 2018F 2019F 2020F

Pre-Tax Profit 29.7 41.0 29.6 37.3 39.8 Dep. & Amort. 48.3 40.5 39.2 41.2 43.6 Tax Paid (9.1) (10.1) (10.1) (11.2) (11.9) Assoc. & JV Inc/(loss) 0.83 (0.2) 1.17 (0.2) (0.2) Chg in Wkg.Cap. 4.47 15.0 (5.0) 9.90 (7.6) Other Operating CF 8.26 (1.7) (3.4) 0.0 0.0 Net Operating CF 82.5 84.4 51.5 77.0 63.6 Capital Exp.(net) (31.9) (36.5) (40.0) (40.0) (40.0) Other Invts.(net) 16.3 14.6 0.0 0.0 0.0 Invts in Assoc. & JV (2.8) (3.3) 0.0 0.0 0.0 Div from Assoc & JV 0.46 0.06 0.0 0.0 0.0 Other Investing CF (0.4) (12.7) 0.0 0.0 0.0 Net Investing CF (18.2) (37.9) (40.0) (40.0) (40.0) Div Paid (8.0) (16.9) (11.4) (14.1) (14.1) Chg in Gross Debt (20.6) 1.34 38.3 (111) 0.0 Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (9.6) (8.9) 0.0 0.0 0.0 Net Financing CF (38.2) (24.4) 26.9 (125) (14.1) Currency Adjustments (0.4) (1.5) 0.0 0.0 0.0 Chg in Cash 25.7 20.7 38.4 (88.1) 9.52 Opg CFPS (S cts) 13.9 12.3 10.0 11.9 12.6 Free CFPS (S cts) 8.99 8.52 2.05 6.56 4.19 Source: Company, DBS Bank

Target Price & Ratings History

S$ 12-mth Date of Closing 1.24 S.No. T arget Rating Report Price Price 1: 07 Nov 17 0.81 1.01 BUY 1.14 2: 20 Dec 17 0.81 1.01 BUY 3: 23 Feb 18 0.91 1.02 BUY 1.04 4: 07 May 18 0.89 0.99 BUY 5 5: 06 Aug 18 1.05 1.07 HOLD

0.94 4

3 0.84 2

1 0.74 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18

Note : Share price and Target price are adjusted for corporate actions.

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

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Company Guide

BreadTalk Group Ltd

DBS Bank recommendations are based 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 catalysts within this time frame) Share price appreciation + dividends

Completed Date: 7 Nov 2018 07:46:10 (SGT) Dissemination Date: 7 Nov 2018 10:17:18 (SGT)

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

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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.

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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 Sep 2018. 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.

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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.

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

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Company Guide

BreadTalk Group 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.

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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 11th Floor The Center 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 99 Queen’s Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, 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

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