BREADTALK GROUP

BREADTALK GROUP| TAKE PROFIT

TARGET PRICE: $2

MARCH 19 CLOSE: $1.89

RHB Research, March 19

Breadtalk's share price has surged 14.1 per cent year to date, outperforming the Straits Times Index by 10.9 per cent.

We believe the market has factored in the higher dividends as well as potential earnings growth from its existing businesses.

However, with more joint ventures in the pipeline, we think the rising capital expenditure and start-up costs could be a near-term overhang.

This year, the total number of new store openings are expected to be ramped up. 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.

There could also be new food atrium openings in China cities where BreadTalk has a strong track record. In addition, chief financial officer Chan Ying Jian has highlighted that there could be a few more joint ventures coming up.

Rising start-up costs could limit further upside in earnings growth. With the current share price reaching our target price of $2, we now recommend investors to take profit (from our previous "buy" rating) and accumulate when prices are closer to $1.70, which implies six times core enterprise value/Ebitda plus investment properties' net asset value.

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