Breadtalk upgraded by RHB despite earnings miss

Toast Box branchToast Box branch

RHB upgraded BreadTalk to Neutral from Take Profit despite first-quarter earnings missing its forecasts.

“While we expect the next three quarters to chart seasonally stronger results, we remain concerned over the group’s near term earnings volatility as a result of potential startup costs for new investments,” it said. “Nonetheless, we understand that the group has plans to expand its bakery franchisee network, and we expect earnings from the bakery segment to pick up over the next three quarters.”

BreadTalk reported on Thursday that its first-quarter net profit tumbled 89.1 percent on-year to S$1.2 million, while revenue edged up 0.5 percent on-year to S$148.5 million.

RHB said the earnings missed its forecasts due to the bakery and food atrium segments dragging “stellar growth” in the restaurant division. It noted the bakery division faced lower revenue after the number of China franchisee outlets fell by 24 from the year-earlier quarter, while the food atrium margins were dragged by the closure of its Hangzhou outlet.

The brokerage cut its 2018-20 earnings forecasts by 4-7 percent on lower-than-expected bakery and food atrium margins and expectations near-term costs would rise as the group makes longer-term investments. It lowered its target price to S$1.86 from S$2.00.

The stock ended Friday down 4.92 percent at S$1.74.