Breadtalk Group's operating profit to fall 6%

Blame it on rising raw material costs.

According to OCBC Investment Research, BreadTalk Group is due to release its 4QFY12 results this week, and it is anticipating another challenging set of results in terms of cost management. While there will be YoY improvements in terms of its top-line, a continued uptick in raw material costs and operating expenses should see operating profit and PATMI decline by 6% and 9% YoY respectively. 

OCBC adds, dividend payout is likely to be maintained at 1.5 S cents – similar to FY11’s 1.5 S cents – which translates to an unappealing dividend yield of 1.3%. 

Here's more:

Desire for consumption-exposure rallies counter BTG’s share price has extended its doubledigit CY2012 growth with another 11.8% gain to start the year.

This rally has persisted despite the lack of any near-term fundamental catalyst for the counter and increasing pressure on its margins. In our view, this appreciation is down to the ongoing desire by investors for exposure to Emerging Market-Asia consumption demand. 

When we reviewed similar stocks (i.e. food retailing business) listed across stock exchanges in the Asia-Pacific region, we noted that forward PE multiples had moved higher to as high as more than 25x for some stocks.

For instance, a similar bakery chain in Hong Kong – Christine International Holdings –saw its forward PE-multiple increase from an average of 11x to 19.6x. 

In light of this re-rating across the food retailing segment – and in particularly stocks with exposure to EM-Asia consumer demand – we raise our rolling 12-month EPS multiple to 19x from 11.1x previously. This increases our fair value estimate from S$0.49 to S$0.77, and we upgrade our rating to HOLD.