■ Unveils 5 th gen bakery outlet concept and 50 new items
■ Potential cost savings via better raw material and staff management
■ Reiterate Outperform (2) and TP of SGD1.29 (2016E PER of 19.6x)
BreadTalk launched its 5th gen bakery outlet concept in VivoCity Singapore, on 20 November 2015. It includes an integrated IT system and 50 new items. We conducted a site visit and spoke with management to understand the potential revenue and cost benefits from the move as well as its implementation timeline.
What's the impact:
The latest generation of outlets boasts a new colour palette, shelves and warm lightings. The move is in line with the company’s image revitalisation plans of a new concept every 3-4 years.
In our visit to its outlet in VivoCity, we saw 3 TV screens (2 for BreadTalk, 1 for ToastBox) mounted on the walls by the side of the store. Apart from advertising its new items and menu, the screens display upcoming bakery items set to hit the shelves in the next 10 minutes. Customers can sign up for digital alerts (email/mobile) which will notify them when their selected items are fresh out of the oven. This will potentially increase customer interaction and drive sales, in our opinion.
The new IT integrated system will also help BreadTalk better manage raw material costs and time its product release according to demand, in our view. Previously, bakers produced items based on a pre-determined schedule. Management said this will reduce wastage by up to 20% and has the potential to lower staff expenses via fewer overtime costs.
Currently, 4 outlets in Singapore and 1 store in Thailand sport the 5th gen concept. The company aims to complete the introduction of the digital system across its Singapore outlets in 6 months, while physical store renovations are expected to take up to 3 years. Priority will be placed on outlets whose leases will be renewed over the next 12 months, followed by high-performing stores. A similar implementation timeline is expected for its outlets in China, Thailand and Indonesia.
Management shared that the average capital expenditure for the complete overhaul of a single outlet is about SGD0.3m.
What we recommend:
We reiterate our Outperform (2) rating and TP of SGD1.29 based on a 2016E PER of 19.6x. We leave our assumptions unchanged as we think significant cost benefits from new IT system may take some time to materialise. The key risk to our call is food scandals.
How we differ:
Our 2016E EPS is higher than the Bloomberg consensus, as we expect stronger EBITDA margin expansion, driven by rationalisation of its restaurant outlets. (Read Report)
Source : Daiwa Capital Markets