Leading manufacturer of Bakery Items

Introduction: BreadTalk group is one of the largest bakeries in Singapore established in 2000. It has expanded hugely in the past and now caters in three categories which are bakery, restaurant and food court. It deals with the supply and manufacturing of bakery food, confectionery and drinks. By the end of December 2011 Company had started 76 new outlets and this made the total number of outlets owned by the company in 471. Out of the 76 new outlets started with the company 24 are owned and franchisee has been given for remaining 52.  It has an average daily turnover of USD 0.1M with a market capitalization of USD 122M.

Current Scenario: BreadTalk group has a network of over 500 bakery outlets in 16 countries such as Singapore, Hong Kong, China and the Middle East. It has over 30 award-winning food courts spread across Singapore, China, Malaysia, Hong Kong, Thailand and Taiwan. It does not anticipate any loss of sales in the second quarter as they have confidence on their strong brand name which has become a household name. The cost of products such as flour, oil, corn, etc. Has increased, but yet it is manageable. We believe that the company can maintain a gross profit of about 55% in line with the margin of the last 5 years despite an increase in prices.

The company has a very dedicated and innovative team with a good R&D structure which takes care of new innovations and always strives to give something new to their customers. With such a commitment company has built the reputation of being a Trendsetter. However, based on the product line of BreadTalk, Increase in prices of products might mean consumers would be reluctant in spending more money compared to what they are spending now.

Future Prospects: Company is planning to expand in China by acquiring an already established outlet rather than starting a new venture. In addition to China, the company is also planning to open more outlets in Thailand and Taiwan. The company is also planning for few more food courts in Taipei and Taizhong which would add to companies’ revenue. The company has intense competition in all of their segments because of drought in the USA and rising prices of Corn and Wheat.  BreadTalk reported an increase in net profit of 1.6% YoY. Apart from the profits, the operating profits fell due to the store expansions and increase in commodity prices. The revenue rose to 22.9%.

The company plans to set up around 1,200 outlets by 2013 by either opening new outlets or increasing franchisee outlets, Company management is confident enough to reach this target.

Conclusion: BreadTalk Group has recently restructured their management. So, with the on-board of new management structures in Place Company wants to focus more on its existing brand names. Company's management has an excellent track record of managing costs effectively, Hence rising costs would have a very minimum effect on the overall margin. OCBC Investment research has maintained HOLD on the stock with a target price of S$0. 56.