Time & date: 9.30 am, 22 April 2014
Venue: 30 Tai Seng Street, #09-01 Breadtalk IHQ
RUSMIN ANG (left) is an equity investor and the author of Value Investing in Growth Companies, an international book title published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Amazon.co.uk, Barnes & Noble and Apple's iTunes & iBooks. This article, which is republished with permission, first appeared on FifthPerson.com
As I wrote in my previous article, 5 Reasons Why You should Attend Annual General Meetings, attending an AGM allows you to gain access to a lot of information you don’t usually read in the annual report that could greatly help you with your investment decisions.
So last week, I showed up at one of my holding’s AGM, BreadTalk Group Limited (SGX: 5DA).
Through questions others and I asked, we got to find out important details that you would have missed if you skipped the AGM. I took the liberty to take down some notes and I thought why not share the nitty-gritty so you can benefit from what I learned as well (you can thank me later).
So here goes…
12 Quick Things I Learned From BreadTalk’s AGM 2014
1. George Quek, founder and chairman of BreadTalk, usually communicates in Mandarin when answering shareholders’ questions. If you’re not too proficient in Mandarin, not to worry because CEO Oh Eng Lock usually translates his main points into English. So if you wish to attend BreadTalk’s AGM but Mandarin is daunting as ancient Greek to you, go right ahead!
2. Three of BreadTalk’s core businesses – Bakery, Restaurant and Food Atrium – are complementary with each other. For instance, its Bakery and Restaurant divisions tend to have very slim operating margins at 4.3% and 7.4% respectively. Breadtalk’s Food Atrium division requires a large amount of shop space and because of their size and bargaining power, they are able to secure lower rental rates. By leveraging on the Food Atrium’s space and putting the Bakery and Restaurant outlets side by side with the Food Atrium, BreadTalk is able to effectively combat escalations in rent and improve the overall operating margin of the group.
3. By 2016, BreadTalk’s total number of outlets is expected to be around 1,000 stores. By 2018, that figure is expected to be around 1,800 stores. From an existing 836 outlets right now, it doesn’t seem too difficult for BreadTalk to achieve this figure judging from their historical growth and success. If it indeed it turns out to be true, we should see an increase in sales and profit in the next five years.
4. A new customer loyalty program could be launched by the end of the year. If BreadTalk sees its loyalty program take off well with customers, we could see an increase in average purchase transactions and frequency – significantly increasing the company’s sales over the long term. All of which is good news for investors!
5. BreadTalk aims to convert majority of their existing floating rate loans to fix rate loans to fight a possible hike of interest rates in the next few years. This move would help to stabilize their interest payments and allow the company to better predict and budget their expenses down the road.
6. Through proper staff sizing, the Food Atrium’s facility to depress rents and a streamlining of processes in its supply chain, BreadTalk is aiming to more than double its net profit margins from 3% to 8%. If they can pull this off in the next few years, we might see more investors getting even interested in its stock.
Photo credit: http://gurkhason.wordpress.com
7. Same store sales growth in China is growing at double digits! Should this trend continue, the expansion into China could prove to be as successful, or even more so, than BreadTalks’ current success in its Singapore home market. This is in line with BreadTalk’s strategy of diversifying risk and building China as its second core engine after the Singapore market.
8. However, getting things right in China has not come easy. Poor overall net profit in China has been attributed to the poor accuracy in selecting sites in the country. Due to the large availability of land in China and cultural differences, four out of 10 new outlets there are poorly selected compared to only one out of 10 in Singapore. Moreover, being familiar with one city doesn’t mean the same rules of success apply in another city. Each city has a slightly different local culture and spending habits. Even though picking the right site for outlets in China is a challenge for Breadtalk right now, if they get it right, Breadtalk’s sales can be amazing in the Chinese market, as evident by their double-digit same store sales growth in China right now.
9. BreadTalk is planning to build Thailand as their third core engine after Singapore and China. Thailand’s Minor International (Mint), one of the largest hospitality and leisure companies in Asia, is a substantial shareholder of BreadTalk. Mint is likely to help BreadTalk speed up its market expansion into Thailand. In return, BreadTalk will provide their knowledge and skills in China to help Mint thrive in the Chinese market.
10. Property investment in Singapore (112 Katong Mall, CHIMJES and 111 Somerset) and in China (Beijing TongZhou Integrated Development) is part of BreadTalk’s vertical integration’s strategy to have first right of refusal on site selection. The investment is meant to complement their core businesses. And by investing in these malls, they get to pick the best sites in the building that ensures high foot traffic and visibility, and allows BreadTalk to continue to building its strong brand identity with consumers.
11. BreadTalk’s succession plan doesn’t include any of George Quek’s family members as of now. He is open to existing employees or external parties who have the talent and capability to fulfill the company’s vision. In this regard, BreadTalk isn’t a typical Asian company where most founders intend to pass down their business to their children regardless of their talent and capabilities (or lack of). When fouders hand down a company to their heirs without talent, the effect can be detrimental to shareholders’ value. BreadTalk investors do not have to worry so much about this now.
12. A last one on George Quek – BreadTalk’s chairman practices t’ai chi (a form of Chinese martial art) regularly. Probably that’s one of the secrets why he always remains so calm and steady, which is good news for investors to know that someone leading a near $400 million company is in firm control of his emotions!