Breadtalk

Breadtalk is one of my biggest positions.

My back of the envelope calculations of its value is as follows:
30 Sep 12
Cash 76.65m
Property Assets 86m (include its new HQ beside Tai Seng MRT, its stake in Katong 112)
Debt and negative WC = -148m
Biz Value = FCF - 30m x 9 = 270m (sticky biz like See's Candies or Old Chang Kee)
Total = 284.45m
Shares = 281m
Price per share = 1.014

Y isit going to property? Well i see it as a way to make use of its idle cash which you can't really say they are doing it the wrong way with after their investments in Katong 112 with Pua Sek Guan, former CEO of Capitaland. The focus should be finding good cash flow generating companies and see what they do with their excess cash flow. Also, take out their property investments from their cash flow statements and you will see that estimating a FCF of 30m a year is very conservative

Breadtalk biz is sticky. Its like an Old Chang Kee with its bakeries all at MRT station. Which bakery boss in the right mind would dare to open an outlet beside breadtalk? I think thats a moat comparable to OCK.

Besides Breadtalk is not just about Bread. Think of Toastbox as well. Its constantly packed. Its Din Tai Fung restaurants is much much more profitable and I don't see enough credit given to it. And how about Food Republic, I see it packed everytime even though as value ppl we don't patronise it often. A hidden option is Carl's Junior in China. Its been loss making in China. Imagine they manage to turn it ard and it gain popularity.

The CEO is a smart guy. Read the interview he does with Forbes below. Besides his rags to riches story, see how he intends to grow all his biz. He wants to make the Breadtalk the equivalent of Starbucks for bread. Isit possible? Thats the same question ppl ask when Ya Kun and Starbucks first came out.
http://www.forbes.com/global/2011/0411/e...-shop.html

Lastly, take a look at his last 6 years' annual report commentary. It will show you not just the growth of the company but also how the George Quek took bold steps along the way to change his management and continue growing the biz.

(29-01-2013, 08:28 PM)itsmylife Wrote: Breadtalk is one of my biggest positions.

My back of the envelope calculations of its value is as follows:
30 Sep 12
Cash 76.65m
Property Assets 86m (include its new HQ beside Tai Seng MRT, its stake in Katong 112)
Debt and negative WC = -148m
Biz Value = FCF - 30m x 9 = 270m (sticky biz like See's Candies or Old Chang Kee)
Total = 284.45m
Shares = 281m
Price per share = 1.014

Y isit going to property? Well i see it as a way to make use of its idle cash which you can't really say they are doing it the wrong way with after their investments in Katong 112 with Pua Sek Guan, former CEO of Capitaland.

Breadtalk biz is sticky. Its like an Old Chang Kee with its bakeries all at MRT station. Which bakery boss in the right mind would dare to open an outlet beside breadtalk?

Besides Breadtalk is not just about Bread. Think of Toastbox as well. Its constantly packed. Its Din Tai Fung restaurants is much much more profitable and I don't see enough credit given to it.

The CEO is a smart guy. Read the interview he does with Forbes. Besides his rags to riches story, see how he intends to grow all his biz. He wants to make the Breadtalk the equivalent of Starbucks for bread. Isit possible? Ask the same question ppl ask when starbucks first came out.
http://www.forbes.com/global/2011/0411/e...-shop.html

Lastly, take a look at his last 6 years' annual report commentarty. It will show you not just the growth of the company but also how the George Quek took bold steps along the way to change his management and continue growing the biz.

---

Hi I have some questions here.

1) Din Tai Fung : how much they contribute to turnover & profit. what are the terms of franchise - BT has with its Taiwanese parent for using DTF brand name in Thailand & Singapore?
2) How much money BT is loosing in China & Ramen Play?
3) You are probably double counting as that HQ is used for business. so are u adjusting ur cash flow for the rental of that HQ.
4) How did u work out property asset of 86 mn?
5) Curious how did u arrive at 30 mn FCF?

Thanks

(29-01-2013, 08:55 PM)buddy Wrote:

(29-01-2013, 08:28 PM)itsmylife Wrote: Breadtalk is one of my biggest positions.

My back of the envelope calculations of its value is as follows:
30 Sep 12
Cash 76.65m
Property Assets 86m (include its new HQ beside Tai Seng MRT, its stake in Katong 112)
Debt and negative WC = -148m
Biz Value = FCF - 30m x 9 = 270m (sticky biz like See's Candies or Old Chang Kee)
Total = 284.45m
Shares = 281m
Price per share = 1.014

Y isit going to property? Well i see it as a way to make use of its idle cash which you can't really say they are doing it the wrong way with after their investments in Katong 112 with Pua Sek Guan, former CEO of Capitaland.

Breadtalk biz is sticky. Its like an Old Chang Kee with its bakeries all at MRT station. Which bakery boss in the right mind would dare to open an outlet beside breadtalk?

Besides Breadtalk is not just about Bread. Think of Toastbox as well. Its constantly packed. Its Din Tai Fung restaurants is much much more profitable and I don't see enough credit given to it.

The CEO is a smart guy. Read the interview he does with Forbes. Besides his rags to riches story, see how he intends to grow all his biz. He wants to make the Breadtalk the equivalent of Starbucks for bread. Isit possible? Ask the same question ppl ask when starbucks first came out.
http://www.forbes.com/global/2011/0411/e...-shop.html

Lastly, take a look at his last 6 years' annual report commentarty. It will show you not just the growth of the company but also how the George Quek took bold steps along the way to change his management and continue growing the biz.

1) Din Tai Fung : how much they contribute to turnover & profit. what are the terms of franchise - BT has with its Taiwanese parent for using DTF brand name in Thailand & Singapore?

DTF is under the restaurant segment in BT’s FY. As far as I know there isn’t a breakdown specifically for DTF. Based on last year FY’s annual report, the restaurant sales grew from 56m to 76m from 2010 to 2011 (35%) and profit rose from 2.8m to 3.7m (32%). And the quarterly continually stress growth from the restaurant segment which I suppose is due to DTF since Ramen Play and Carl's Junior is loss making.

The franchise rights should be around 15-20 years from the notes in the AR.

2) How much money BT is loosing in China & Ramen Play?

That’s a good question and I don’t have the exact answer. As a whole they are making money through their bakery arm in China but they are still losing through Carl’s Junior and Ramen Play

3) You are probably double counting as that HQ is used for business. so are u adjusting ur cash flow for the rental of that HQ.

Nope didn’t do that. I just counted it as part of property. Since the HQ has not finished construction yet, so I didn’t count any revenue from it.

4) How did u work out property asset of 86 mn?

I have used the latest PPE of 121m in Q3 and divided by 2 to get 60m and add the investment securities, instruments that they used to subscribe for Katong Mall and Chijmes which is about 26m.

Note that under PPE they are only adding the cost of construction for the HQ so far. Also they bought the land few years back probably at a much cheaper price. I am already undervaluing the PPE by giving it a 50% discount. If I am not wrong its just opposite Tai Seng MRT and at current market price, PPE will probably be worth more than the 60 I gave it credit for.

5) Curious how did u arrive at 30 mn FCF?

Now 30m is really me trying a conservative guess.

First I value the FCF on a no growth basis co I really don’t know if expansion will increase or decrease their FCF.

For OCF, because BT accelerates their depreciation using only 3 years, their cash earnings is always higher. In fact, add in the last 4 quarterly OCF, in the last 12 mths, the CFO was 57m. I have assumed 55m on a no growth in OCF basis which is unlikely.

The problem lies with the CAPEX calculation. We have to take out non-Capex items like its bonds. The largest item remaining pertains to additions to PPE. Here it seems large at 71m over the last 4 quarters of combined additions. But we have to remember a large portion pertains to the new HQ. In FY2011, they have used 37m in Capex as well but part of it also includes the HQ construction.

Another part of CAPEX is used on increasing new outlets. Since my estimation of OCF is on a no growth basis, we have to take out CAPEX for opening of new outlets. I estimate real maintenance CAPEX for existing outlets to be 25m.

55m OCF minus 25m Capex. Hence the arrival of FCF of 30m

Thanks. This is very helpful. I really appreciate you taking time to answer my queries.

(31-01-2013, 01:11 PM)itsmylife Wrote: 1) Din Tai Fung : how much they contribute to turnover & profit. what are the terms of franchise - BT has with its Taiwanese parent for using DTF brand name in Thailand & Singapore?

DTF is under the restaurant segment in BT’s FY. As far as I know there isn’t a breakdown specifically for DTF. Based on last year FY’s annual report, the restaurant sales grew from 56m to 76m from 2010 to 2011 (35%) and profit rose from 2.8m to 3.7m (32%). And the quarterly continually stress growth from the restaurant segment which I suppose is due to DTF since Ramen Play and Carl's Junior is loss making.

The franchise rights should be around 15-20 years from the notes in the AR.

2) How much money BT is loosing in China & Ramen Play?

That’s a good question and I don’t have the exact answer. As a whole they are making money through their bakery arm in China but they are still losing through Carl’s Junior and Ramen Play

3) You are probably double counting as that HQ is used for business. so are u adjusting ur cash flow for the rental of that HQ.

Nope didn’t do that. I just counted it as part of property. Since the HQ has not finished construction yet, so I didn’t count any revenue from it.

4) How did u work out property asset of 86 mn?

I have used the latest PPE of 121m in Q3 and divided by 2 to get 60m and add the investment securities, instruments that they used to subscribe for Katong Mall and Chijmes which is about 26m.

Note that under PPE they are only adding the cost of construction for the HQ so far. Also they bought the land few years back probably at a much cheaper price. I am already undervaluing the PPE by giving it a 50% discount. If I am not wrong its just opposite Tai Seng MRT and at current market price, PPE will probably be worth more than the 60 I gave it credit for.

5) Curious how did u arrive at 30 mn FCF?

Now 30m is really me trying a conservative guess.

First I value the FCF on a no growth basis co I really don’t know if expansion will increase or decrease their FCF.

For OCF, because BT accelerates their depreciation using only 3 years, their cash earnings is always higher. In fact, add in the last 4 quarterly OCF, in the last 12 mths, the CFO was 57m. I have assumed 55m on a no growth in OCF basis which is unlikely.

The problem lies with the CAPEX calculation. We have to take out non-Capex items like its bonds. The largest item remaining pertains to additions to PPE. Here it seems large at 71m over the last 4 quarters of combined additions. But we have to remember a large portion pertains to the new HQ. In FY2011, they have used 37m in Capex as well but part of it also includes the HQ construction.

Another part of CAPEX is used on increasing new outlets. Since my estimation of OCF is on a no growth basis, we have to take out CAPEX for opening of new outlets. I estimate real maintenance CAPEX for existing outlets to be 25m.

55m OCF minus 25m Capex. Hence the arrival of FCF of 30m

BreadTalk’s share price has seen a darn decent run in recent months – reference Postings 43 thru 50 on this VB thread for a further discussion on this. The company posted FY 2012 and Q4 2012 results yesterday evening and, while there are some good growth positives, there are a couple of noteworthy “wobbles” included in the Q4 results in particular, viz.:

+ve: 4Q 2012 results showed a ~ 19% year-on-year increase in revenue and a ~ 6 % year-on-year increase in operating profit – both the FY revenue (up > 22% as compared to FY 2011) and FY NPAT (up ~ 4% as compared to FY 2011) were record levels for the company. All the company’s divisions, except Food Courts, appeared to up their revenues in Q4 2012 as compared to Q4 2011.

+ve: The Restaurant division seems to be doing best overall of the Company’s divisions - the Din Tai Fung restaurant component did particularly well (again).

+ve: Some operations outside Singapore & China did well. In particular Thailand in particular had strong profitable growth (vs. e.g. China, which was flat). I’m pleased to see that, during the course of the year, management have had the courage to cut some unprofitable BreadTalk businesses in Malaysia.

-ve: I found the slight erosion in BreadTalk’s net profit margin in Q4 2012 a concern – cost pressures apparently took their toll. I had expected margins to improve a tad, given the emphasis and resources (including money) that the company is devoting to boosting its margins (and also because Q4 is traditionally the Company’s strongest quarter).

-ve: BreadTalk declared a final dividend of S$ 0.8 cents which, when added to their S$ 0.5 cents interim, brings the FY 2012 total dividend to S$ 1.3 cents. I’m disappointed since, despite higher absolute (and record) profitability levels, this is actually less than the total S$ 1.5 cents dividend paid in respect of FY 2011. I don’t buy the “because we are a growth company” drivel that the company is apparently peddling to Singapore's analyst community as its “reason” for a dividend reduction.

-ve: The Food Court business struggled – it seems to have been hit particularly hard by rising costs and renovation work/impact at a couple of its larger mall operations in Singapore. And the performance of Ramen Play in China looks like its in the dog category.

Mr. Market appears to have taken the results in his stride today – the share price actually strengthened, with decent volumes of shares changing hands (> 1.2 Million in today’s session). I wonder if he has taken note of the margin/cost pressures seen in Q4?

Vested

Thank goodness I sold... Enjoy the ride for those still vested.

Not sure if they have the discipline to overcome the margin squeeze. My eyes dont tell me any innovation compared to what other restaurants implemented..

Despite BreadTalk's "so-so" Q4 2012 results - particularly as regards ongoing margin challenges and the FY dividend reduction - their share price run continued during today's SGX trading session. Up ~ 5.3/4%, comfortably surpassing its previous 52-Week high, BreadTalk's share price closed at S$ 0.83. Volume was a healthy 832,000 shares.

BreadTalk is now trading on a P/E not far shy of 20 with a dividend yield of ~ 1.6%. I note that Primacy Investments have not made any further disclosures following the mid January announcement that they had increased their BreadTalk shareholding to 6.28%. But it is difficult to understand what is driving BreadTalk's continued share price appreciation if it is not stake-building - I wonder if another material investor is building a meaty stake? Any views from those forummers (still) vested?

Vested .......... and, for the avoidance of doubt, I'm not complaining.

(07-03-2013, 05:09 PM)RBM Wrote: Despite BreadTalk's "so-so" Q4 2012 results - particularly as regards ongoing margin challenges and the FY dividend reduction - their share price run continued during today's SGX trading session. Up ~ 5.3/4%, comfortably surpassing its previous 52-Week high, BreadTalk's share price closed at S$ 0.83. Volume was a healthy 832,000 shares.

BreadTalk is now trading on a P/E not far shy of 20 with a dividend yield of ~ 1.6%. I note that Primacy Investments have not made any further disclosures following the mid January announcement that they had increased their BreadTalk shareholding to 6.28%. But it is difficult to understand what is driving BreadTalk's continued share price appreciation if it is not stake-building - I wonder if another material investor is building a meaty stake? Any views from those forummers (still) vested?

Vested .......... and, for the avoidance of doubt, I'm not complaining.

don't you guys think PE 20x for a small cap illiquid stock is just crazy and defies logic? and for a stock with earnings growth of 8-10%? it is definitely not a value stock!

what on earth is happening to our stock market....

I don't think we have reached the exuberance stage yet. However I do agree that everything you look at is richly valued with growth priced in.

(07-03-2013, 07:50 PM)wozhaodaole Wrote:

(07-03-2013, 05:09 PM)RBM Wrote: Despite BreadTalk's "so-so" Q4 2012 results - particularly as regards ongoing margin challenges and the FY dividend reduction - their share price run continued during today's SGX trading session. Up ~ 5.3/4%, comfortably surpassing its previous 52-Week high, BreadTalk's share price closed at S$ 0.83. Volume was a healthy 832,000 shares.

BreadTalk is now trading on a P/E not far shy of 20 with a dividend yield of ~ 1.6%. I note that Primacy Investments have not made any further disclosures following the mid January announcement that they had increased their BreadTalk shareholding to 6.28%. But it is difficult to understand what is driving BreadTalk's continued share price appreciation if it is not stake-building - I wonder if another material investor is building a meaty stake? Any views from those forummers (still) vested?

Vested .......... and, for the avoidance of doubt, I'm not complaining.

don't you guys think PE 20x for a small cap illiquid stock is just crazy and defies logic? and for a stock with earnings growth of 8-10%? it is definitely not a value stock!

what on earth is happening to our stock market....

(07-03-2013, 07:50 PM)wozhaodaole Wrote: don't you guys think PE 20x for a small cap illiquid stock is just crazy and defies logic? and for a stock with earnings growth of 8-10%? it is definitely not a value stock!

what on earth is happening to our stock market....

I sense that my posting of yesterday evening regarding BreadTalk's Thursday share price performance caused some annoyance to some forummers.

Well I'm afraid this VB posting is going to be even more annoying ..........

Today BreadTalk's share price climbed a further 7.1/4% to close at S$ 0.89. I only saw a slight wobble during the mid-afternoon's trading at about the S$ 0.88 level but the counter ended the day strongly. Volume was a very decent ~ 1.3 Million shares (I do not believe recent BreadTalk trading volumes can be charachterised as "illiquid"). BreadTalk's share price has now gained ~ 13.4% in the last two SGX trading sessions.

I agree that key valuation metrics appear stretched, to say the least, e.g. Dividend Yield is ~ 1.5% and P/E is now ~ 21. This for a company which is fighting to keep margins up and recently reduced its FY dividend y-o-y. I can only conclude that stake-building is going on. So I'm hanging on for the time being.

Lest any forummer thinks I am gloating, I'm not - Cheung Woh, Olam Bonds, Q&M and Techcomp have all had a pretty tough time of late and regrettably I'm vested in all four. Darn sobering.

As an aside ........... this entire VB BreadTalk thread - from begining to where it stands today - makes for a fascinating read - and we are only 60 posts in, with possibly "the more interesting stuff" yet to come. One day some bright student youngster may use it as a basis for a case study, vis-a-vis the "physchology" of investing (and not investing). HaHa!

Vested