3 reasons behind BreadTalk's attractive growth prospects

Share price poised to cross the $1 barrier.

According to OCBC Investment Research, with BreadTalk’s share price seemingly poised to cross the S$1 barrier again, we remain steadfast in our analysis and assertion that valuations are looking stretched at current levels. 

BreadTalk’s growth prospects appear attractive: i) targets emerging consumer markets such as China
and Taiwan, ii) owns a high-profile bakery brand and franchise rights to the popular Din Tai Fung restaurant, and iii) operates a chain of domestic food courts.

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However, realizing future potential takes time, and more importantly, carries significant operating and execution risks.

With BreadTalk currently trading at a trailing twelve month (TTM) PE of 22.4x, which is an all-time high for the group since its listing in 2003, it appears that the current price has already priced in the future potential of its business.

As a recap, from FY09-12, the group’s operating profit and PATMI only grew by a CAGR of 4.6% and
2.7% respectively, despite revenue increasing by a CAGR of 22.0%.

Operating margins also remained in the low single-digit territory, and we expect this trend to continue in the coming quarters.