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Broker's take: RHB downgrades BreadTalk to 'sell' on overheated valuations

RHB Research on Friday downgraded BreadTalk Group to a "sell" rating from its "neutral" rating, saying that valuations are too high after the F&B (food and beverage) company missed recent profit estimates.

The brokerage also cut its target price to S$1 from S$1.04. It said that following a weak first half, full-year earnings are expected to fall from a year ago, with higher overhead cost in the second half.

"Expect near-term volatilities from new investments," RHB added, noting that over the next six months, it is looking to open two to three Song Fa eateries in China and Thailand; a Wu Pao Chun bakery in China; Nayuki cafe, Tai Gai tea in Singapore, as well as a Din Tai Fung restaurant in the UK. 

BreadTalk's net profit rose 10.5 per cent to S$2.4 million for the second quarter ended June 30, 2018, from S$2.2 million in the year-ago period. Revenue for the quarter was flat at S$148.8 million, compared to S$147.7 million in the year-ago period. 

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Shares of BreadTalk were unchanged at S$1.14 as at 10.54am.