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Bread or Stone

Company Profile

BREADTALK is a food & beverage company and was listed in SGX in June-2003. Singapore is the company major market contributing 58% of total sales in 2018. Other served markets are: China, Hong Kong, Taiwan, Malaysia, Thailand, Indonesia, Myanmar, India and United Kingdom. 

While the company was known if its bread, buns, cakes and pastries, the firms have since expanded into other F&B businesses and franchises. Brands include:

  • Breadtalk

  • Toast Box

  • Bread Society

  • Food Republic

  • Thye Moh Chan

  • The Icing Room and 

  • So

Franchises include:

  • Din Tai Fung

  • Wu Pao Chun Bakery

  • Song Fa Bak Kut Teh

  • Nayuki

  • TaiGai tea

Business Situation

Revenue grew substantially until 2015 and have since plateaued. 

Operating margin (not including Other Income) had been trending lower since peaking in 2007. Net margin bottomed in 2015 and improves between 2016 - 2018. This is partly due to asset disposal and more importantly, management fee income. 

Portfolio Performance

Restaurant businesses was an important earning contributor to the company. However, it appear its margin is under pressure in 2018. 1H19 indicates slight margin pressure as well.

Bakery margin had been trending down since 2009 and will likely continue to face pressure due to intense competition. 

Food Atrium showed mark margin improvement in 2017 & 2018. 1H19 indicate that margin continues to improve. 

Bread or Stone

On 2-Sep-2019, Breadtalk announced that it will acquire Food Junction for $80M. FJ reported a loss of $1.7M in 2018. 

Improvement in the company Food Atrium businesses and scale economics could be the key motivation to acquire Food Junction. 

Pre-merger, Breadtalk debt level is already elevated. Z-Score declined substantially in part due to the adoption of SFRS (I) 16 regarding recognition of leases and right-of-use asset. Lower working capital and market capitalisation were other reasons for the weakening Z-Score. 

Breadtalk growth ambition predicates on her ability to turnaround Food Junction. Buying at 6.7 P/B appear costly and increases debt further. Prolong or inability to turnaround Food Junction business could turn it into a stone around Breadtalk's neck leading to existential crisis for the company.

Finally, going alone without involving shareholders approval will only isolate the company and future opportunities to raise funds at favourable valuation.

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