3 reasons why I love BreadTalk as an investment

Warren Buffett’s phenomenal success (his annualized return for the last 48 years is 19.7%) has inspired many others, including me, to become successful investors. The Oracle of Omaha has also dispensed wonderful insights and wisdom through the letters he writes to his shareholders every year.

In one particular letter in 1985, he famously wrote:

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”

Over the years of investing, I came to realize that Buffett’s words and wisdom are indeed timeless. That line above is probably one of the reasons why I’ve made xxx% returns (so far) investing in BreadTalk instead of just xx%. Let me explain.

I chanced upon BreadTalk in early 2010. Despite numerous economic downturns, BreadTalk has defied gravity and grown from strength to strength. The resiliency of its business model and the ability to generate rising revenue and profits during a recession got my attention and I went to analyze it.

Unfortunately at that point, BreadTalk’s share price had already gone on a good run and was trading above 70 cents a share (the stock market was in the midst of recovery after the subprime financial meltdown). I analyzed BreadTalk using the Investment Quadrant and I concluded that its stock valuation was overpriced. So I skipped over BreadTalk and placed it on my watchlist.

Two years later, the Euro Debt crisis brought fear and panic to the stock markets and BreadTalk’s share price tumbled to below 50 cents as one Hong Kong fund manager and another substantial shareholder reportedly dumped the shares. A stock market crash often offers a great opportunity for investors to purchase great stocks at large discounts. So instead panicking, I again re-assessed BreadTalk’s fundamentals using the Investment Quadrant.

This time the criteria in all four quadrants (Business, Management, Financials and Valuation) were met and without any hesitation, I made my purchase at 49 cents a share for BreadTalk. As of 31st October 2014, BreadTalk’s share price is now $1.315. I am now sitting on an unrealized gain of 168.37% (it even went as high as 204.09% in May 2014).


Source: Yahoo! Finance

I share with you this article not to impress you but to bring across a hugely important point:

Do you have a decision-making process/system to help you consistently pick great companies and that tells the best time to invest?

A sound decision-making process leads to positive and profitable investment outcomes in the long run.

We all know we need such a process in place, yet many are guilty of cognitive biases that lead them to poor investment decisions. How? By taking shortcuts. They make their purchases purely from listening to a stock tip. Predictably enough, they lose money in many instances.

Logically, there is nothing wrong about listening to a stock tip. You could kill two birds with one stone — you save time and make money! So why not? The catch is that you have to listen with a critical ear and do your own due diligence. Stock tips are useful for investment ideas but you can’t blindly make an entire investment based purely on a simple stock tip.

Besides, if you don’t do your own research and you’re not sure of what you’re investing in, the short-term volatility of the stock market will become an emotional roller coaster and nightmare for you. On the other hand, if you did do your research and you know exactly what you’re investing in, you will have the faith and confidence in your investment despite the unpredictability of the market.

For instance, when I purchased BreadTalk at 49 cents, the share price declined to 46 cents a share. (Surprisingly, this nearly always happens whenever I enter a position. Who knows? I could have made a fortune shorting against my purchases in the short-term!) But obviously, it didn’t matter to me; I knew it was a great investment and I continued to hold.

Just like a safety harness prevents a rock climber from a serious fall, the fundamentals and the facts that I have are my safety harness whenever the stock market drops. As long as my harness remains strong and intact, I continue to hold.

Here’s why 3 main reasons why I love BreadTalk as an investment:

#1 Number of outlets are growing rapidly


Number of outlets 2003-2013. Source: Company annual reports

In Singapore, it’s a common sight to see BreadTalk bakeries and its eateries (Food Republic, Ding Tai Fung, RamenPlay and Toast Box) sprouting up across the island. I’ve been a frequent customer for many years and I especially like their chocolate-coated croissant topped with almonds. Whenever I eat that, BreadTalk’s share price would shoot up by 10%. (I’m just kidding!)

As the business grew, the company had more capital and resources to expand overseas, including my home country of Indonesia. My trips back to Jakarta also helped with my continual analysis of BreadTalk: I would encounter BreadTalk’s franchises in almost every mall I went to and they always had moderately good human traffic in their outlets.

From there it was clear to me that BreadTalk’s products have a strong regional appeal and similar success has also been seen in other foreign markets like China, The Philippines, Thailand, Malaysia, Hong Kong, Vietnam, etc. As you can see from the chart above, BreadTalk’s total outlets have grown from a mere 23 in 2003 to more than 700 outlets across fifteen territories in Asia in 2013.

#2 Healthy and growing operating cash flow

breadtalk-chart-2Source: Company annual reports

BreadTalk’s bakeries, food courts and restaurants operate in an extremely competitive F&B market. So, it is not surprising to see the company’s net profit margin at less than 5% since its listing in 2003.

But like how Amazon’s Jeff Bezos doesn’t care about profit margins and instead focuses on growing operating cash flow that leads to higher free cash flow per share, BreadTalk pays similar attention on growing its operating cash flow. A quick look at the chart above shows that the company’s operating cash flow has more than tripled from $15.3 million in 2005 to $70 million in 2013.

#3 It was trading at a bargain price

In mid-2012, I figured that it didn’t take a genius to invest in a high-growth company that was priced below four times operating cash flow!

A few of my close friends have also made a nice investment return on BreadTalk alongside me, but credit should be given BreadTalk’s founder, George Quek, and the hardworking team behind him. Without them, BreadTalk and its share price wouldn’t be where it is today.

If you remember Buffett’s classic line at the beginning of this article, he was right. Investing requires a heck lot of patience and some things just need to take time before you see its results. First, you need time and patience to wait for a stock to be available at the right (undervalued) price. Then you need to time and patience for the market to eventually reflect its true value over the long term.

BreadTalk’s fundamentals impressed me when I first ran my research in 2010. If I have invested then at 70 cents, my returns would be much lower today at just 87%.

Believe it or not, “love at first sight” doesn’t work in the stock market. If you jump in too soon, you might not know what you’re signing up for. But I took the time to get to know BreadTalk much better and when the time was right, I was happy to put my money down and tie the knot. Today, I’m the proud father of 168% returns with more to come!

[**Want more case study of a great company? This company is so good that it consistently INCREASE their dividends over the years – Up To A Whopping 186% ! Find Out Which Company is on Our Dividend Watchlist **]

Rusmin Ang

Rusmin Ang is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times and Business Insider. Rusmin has appeared on Channel NewsAsia and on national radio on Money FM 89.3 for his views and opinions on how to invest successfully in the stock market. He believes that anyone, even with a regular job, can achieve more financial peace-of-mind by investing intelligently and safely for the long term.


  1. Hi Rusmin,
    Appreciate your insightful analysis on Breadtalk.

    You are Right, “A sound decision-making process” is very important. I attended your investment class. I should have accepted the fact/financial number of Breadtalk, rather than just thinking that its just a Bread/Eatery company & profit margin will be squeezed by high rental & manpower cost:-)

    Best Rgds

    1. Hi David,

      Glad you enjoyed the analysis. I guess it’s never too late to learn. Anyway, BreadTalk still has long way to go and you’ll probably know what to do now should any new opportunity come knocking (:

  2. Hi,

    I understand you became an analyst only in 2011, and how could you analyse breadtalk with the investment quadrant in early 2010? Did you analyse all your stock business ideas with the investment quadrant before you turn analyst? Thks.


    1. Dear M,

      You’re sharp ! You’re right to say there was no Investment Quadrant prior to 2010 but there is a “predecessor”.

      You see, back in 2010, Victor & I wrote a book called “Value Investing in Growth Companies” and the methodology used is known as the “Jigsaw”. The book was published in 2011. (You can read about my analysis on BreadTalk in the book using the “Jigsaw”)

      But over the years, we’ve gained more insights and learned new things. Since then, the “Jigsaw” has been refined and improved to what is known as The Investment Quadrant today.

    1. Hi Allan,

      We are not invested so I can’t give you a more detail breakdown. But then again, It’s really unfortunate to see the market ruthlessly shave off $800 million of market value from OSIM in merely three months. In times of crisis like this, I usually make the habit to reassess the initial reason why I got hitched with a stock. And if the reasons are still intact, I continue to hold them. Back to your question, what were your initial reasons of getting into OSIM?

    1. Hey ‘S’,

      We do not have any resources to find the short interest for Singapore Stocks. If we happen to come across any, we’ll update here and let you know. =)

  3. Rusmin Ang
    Dear Rusmin (if I may),
    Bread Talk
    Like your analysis of Bread Talk, particularly emphasis on Casf Flow,FCF
    Like the business they are in and their dynamism.
    But ROA at below 4% may be less than their Cost of Capital from now on.
    Also the stock is trading at the top end of their trading range,
    so prefer to wait for a better(re-) entry point.Do you agree?

    1. Hi Peter,

      Yes, please always feel free to ask!

      I wouldn’t rely on BreadTalk’s ROA because I believe their profit is “understated”. This is due to the company’s conservative accounting practice of paying its depreciation in as few years as possible thereby reducing its profit in the short term.

  4. Hi Sir,
    The analysis you provide are very helpful. I would like to learn more about stock market. Could you advice me how to get started since i’m a beginner.

    1. Hi Sayed,

      Glad you found our article very helpful!

      Sure! To start off, you can sign up for The Fifth Person newsletter to receive news, analyses, and updates about stock investing 2-3 times a week. Next, you can check out our digital stock investment course — The Investment Quadrant!

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