BreadTalk could spend $200m on its return to expansion phase

It wants to lift its net margin from 3% by expanding and partnering with other firms.

After several years of major rationalisation exercises, BreadTalk is now back in its expansion phase, RHB Research said.

RHB analyst Juliana Cai noted that the group CEO Henry Chu is keen on BreadTalk partnering with established F&B companies to expand into geographies it is familiar with. “We note that since the appointment of Mr Chu as the new CEO last July, the group has signed partnerships with Song Fa Holdings, Shinmei Co Ltd, and Wu Pao Chun Bakery,” she said.

She also expects BreadTalk to spend around $200m in capex over the next three years. BreadTalk also has plans to lift its net margin significantly from its current level of 3% over the next five years, Cai said. “According to management, these new ventures have the potential to earn high margins. We are positive on its medium-term prospects and believe they are essential in helping the group achieve its 5-year goal,” she added.

As a result, increased capex and start-up expenses could result in a near-term overhang. The total number of new store openings are also expected to be ramped up.

“Whilst we think the bulk of the bakery expansion is likely to be done through the franchisees, the group has plans to open three Song Fa outlets in China, one Din Tai Fung outlet in the UK and a few more Din Tai Fung restaurants in Thailand this year. There could also be new food atrium openings in China cities where BreadTalk has a strong track record. In addition, CFO, Mr Chan Ying Jian, highlighted during the last analyst briefing that there could be a few more JVs coming up,” Cai said.

The analyst expects the increasing start-up costs and rising overhead expenses to limit the upside in its earnings growth.