Brokers' Call: BreadTalk Group

Raffles Medical's near-term growth would be muted, following a gestation period after its expansion plans, but long-term growth is a possibility, says DBS Group Research.
Raffles Medical's near-term growth would be muted, following a gestation period after its expansion plans, but long-term growth is a possibility, says DBS Group Research.PHOTO: RAFFLES MEDICAL GROUP

BreadTalk Group

Broker: DBS Group Research

Call: Buy

Target price: $2.04

BreadTalk earnings will continue to deliver growth, driven by a recovery in the foodcourt segment.

In the second quarter of 2017, BreadTalk's core businesses continued to improve, with foodcourts now profitable and the restaurant segment seeing a margin expansion. The continued recovery in the foodcourt segment will drive growth.

BreadTalk's valuation, based on its core business (ex-property investments), is compelling at 18x price-to-earnings ratio forecast for financial year 2018. There is also potential for special dividends if Perennial sells AXA Tower.

Operational risks include food safety and licences, as well as negative publicity. In extreme cases, food operating licences can be revoked for a lapse in food safety. Negative publicity may also result in weaker demand and poorer marketability when selling its franchises as the public and franchisees shy away.


Raffles Medical

Broker: DBS Group Research

Call: Hold

Target price: $1.20

Taking into account start-up costs from the opening of new hospitals in China, hold rating is maintained for Raffles Medical.

At its current valuation of 23x Ebitda (earnings before interest, taxes, depreciation and amortisation) forecast for financial year 2017, the counter has reflected its longer-term growth potential, while near-term growth would be muted, following a gestation period after its expansion plans (Raffles Hospital Extension and two new hospitals in China in 2018/2019), due to start-up costs and a less robust macroeconomic growth and outlook on existing operations.

Better-than-expected ramp-up of new projects and new expansion plans, and recovery of existing operations are potential catalysts. While healthcare is relatively resilient, private healthcare could be impacted by a slowdown in the economy as elective procedures can be deferred or patients choose public hospitals as a lower-cost alternative.


StarHub

Broker: CIMB

Call: Sell

Target price: $2.50

StarHub's second-quarter 2017 Ebitda fell 6.1 per cent year on year on lower service revenue and National Broadband Network grants. Core earnings per share (EPS) fell a bigger 14.8 per cent year on year as depreciation, interest costs and the effective tax rate were higher. Core EPS and Ebitda for the first half formed 53 per cent and 57 per cent of the 2017 forecast respectively, as weaker earnings were seen in the second half due to higher handset subsidies.

As expected, StarHub declared a dividend per share of 4 cents in the second quarter, in line with its guidance.

Mobile service revenue fell 0.9 per cent year on year due to the decline in roaming and IDD usage. Postpaid average revenue per user rose 4.5 per cent quarter on quarter. Pay-TV revenue was down 7.9 per cent year on year. Subscriptions fell for the eighth consecutive quarter by 2.1 per cent quarter on quarter to 477,000, impacted by piracy and alternative over-the-top viewing platforms, though the revenue decline was partly buffered by higher advertising sales.

A good entry point would be below $2.20 (bear case) and an exit point above $2.80 (bull case).

A version of this article appeared in the print edition of The Straits Times on August 07, 2017, with the headline 'Brokers' Call'. Print Edition | Subscribe