SINGAPORE (June 9): DBS Vickers Securities is reiterating its “buy” recommendation on BreadTalk Group, with a higher target price estimate of S$1.92, on the belief the group’s earnings will continue to turn around and deliver growth.

“[BreadTalk’s] 1Q17 earnings have validated that its foodcourt business is on track for a turnaround,” notes lead analyst Alfie Yeo in a Friday report.

“We believe consensus has yet to factor in BreadTalk’s investment properties into its share price. BreadTalk’s core business is undervalued at 16.2x FY17/18F PE after stripping out the value of investment properties from the current share price. Applying a 22x PE valuation to the retail business and adding back the value of its investment properties, we have derived a target price of S$1.92, which is above consensus,” he elaborates.

Apart from earnings growth, the analyst sees potential catalysts from the possible sale of AXA Tower or CHIJMES should co-investor Perennial Real Estate Holdings require fundraising — which implies the likelihood for more special dividends.

To recap, Bloomberg on May 31 had reported that United Engineers had picked Perennial for final talks for a potential divestment. As such, the integrated real estate and healthcare company may need to raise funds to pursue the S$1.9 billion takeover deal. 

AXA Tower and CHIJMES, which BreadTalk has a respective 5.31% and 29% stake in, have been identified by Yeo and Sim as likely targets for divestment.

“BreadTalk has tag along rights [as a joint investor with Perennial in AXA Tower and CHIJMES] and has monetised along with Perennial for 111 Somerset and 112 Katong before. The revaluation of Beijing Tongzhou Development will also be another share price catalyst,” they add.  

As at 10.21am, shares of BreadTalk are trading 1 Singaporean cent lower at S$1.64.