The long-term outlook for BreadTalk’s new ventures, including its tea expansion, is positive, but this year’s earnings could feel a pinch, RHB said in a note on Tuesday.
“We are positive on the longer-term prospects for some of BreadTalk’s new ventures, but note that the surge in new joint ventures and expected new store openings in the second half of 2018 would result in start-up costs dragging bottomline growth this year,” it said.
In particular, RHB said it was positive on the joint venture announced this week for two tea brands.
On Monday, BreadTalk said its subsidiary Together Inc. entered a joint venture with Shenzhen Pindao Food & Beverage Management to bring popular Nayuki and Tai Gai beverage brands to Singapore and Thailand. The venture will also have right of first refusal to operate in Malaysia, Indonesia and the Philippines, the company said.
“Singapore has seen strong demand for customisable tea ranges from the younger generation,” RHB said, although it highlighted the low barrier to entry for beverages and that Singaporean customers can be “a fickle lot.”
But it added, Tai Gai “stands a chance” if it brings innovative flavours. Additionally, RHB pointed to a “gap” in Singapore’s premium tea scene, with TWG likely the only player in that segment.
“The lack of players in this space could enable Nayuki to step up and fill the gap,” it said.
RHB noted that management’s target was an 8 percent net margin in 2022, with many of the recent ventures expected to yield much higher margins compared with the existing business.
But with the short-term start-up pressures, it rates BreadTalk at Neutral, with S$0.93 target price.
The stock was down 0.54 percent at S$0.92 in late trade on Wednesday.