Daiwa cuts BreadTalk forecasts on plan to acquire NPPG (Thailand) stake

BreadTalk outlet in Singapore; taken September 2018.BreadTalk outlet in Singapore; taken September 2018.

Daiwa lowered its earnings forecasts for BreadTalk on the bread-maker’s plan to acquire a 20 percent stake in NPPG (Thailand).

“While longer-term synergies could be reaped, we think the acquisition is likely to pose a drag on near-term earnings performance,” Daiwa said in a note on Wednesday.

Singapore bun-maker BreadTalk said on Tuesday it planned to acquire a total of 380 million shares in plastic packaging maker NPPG (Thailand) at 1.50 Thai baht a share, for a total of 570 million baht (S$24.28 million or US$17.95 million).

Daiwa noted NPPG (Thailand) reported a 2018 loss of 280.9 million baht.

It cut BreadTalk’s 2019-21 earnings per share forecasts by 3 percent to 6 percent, and lowered its target price to S$0.89 from S$0.92, keeping a Hold call.

The investment bank said that while Thailand was an important market for the bun-maker as it works to expand some of its newer brands, such as Song Fa and Nayuki, it wasn’t entirely certain how NPPG (Thailand) would play a role.

“Given that BreadTalk has already established a sizeable foothold in its third-largest market, Thailand, through several other vehicles and joint ventures, it remains unclear to us at this stage what NPPG’s role will be in the company’s expansion roadmap,” Daiwa said.

The investment bank said it expected BreadTalk would see an earnings recovery this year, as some of its restructuring initiatives take effect, but the stock’s current valuation at 31 times price-to-earnings means that could already be priced in.

The stock ended Thursday down 1.17 percent at S$0.85.



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