SINGAPORE (Sept 10): Daiwa is initiating coverage of bakery, restaurant and food-court operator Breadtalk with a 'buy' and target price of $1.31.

In a Wednesday report, analyst Shane Goh says Breadtalk has underperformed peers on the back of soy-milk scandal in Singapore.

“This seems unjustifiable given its revenue growth for 2015-17E, and as we expect further upside from outlet and margin expansion,” says Goh.

Goh says he is positive on BreadTalk’s outlook, driven by potential new store openings for its three business segments and EBITDA margin expansion, due it culling its underperforming RamenPlay restaurants.

Breadtalk is planning to open 189 new bakery outlets to open by the end of 2017E, with 150 franchised bakery stores. It also aims to have 80 food courts by 2017, up from 62 as at 30 June 2015.

Meanwhile, Goh expects overall EBITDA margin expansion to come from the closure of non-performing RamenPlay restaurants or converting the space to house better-performing brands like Din Tai Fung and Sanpoutei.

This will lead to higher SSSG (11.7% over 2014-17E) for the restaurant business.

Breadtalk is down 1.3% at $1.145.