Hi Victor / Rusmin,

In the videos, it was mentioned that it isn’t appropriate to use the P/E ratio to assess the company (BreadTalk) as the earnings are distorted – due to high amortization rate of 3 years instead of the average 5 years.

May I know where can i find this piece of info? The amortization rate of the company, is it in the Annual Report?

Many thanks.

Hi Dylan,

The number was measured back in 2011/12 by dividing property plant and equipment with yearly depreciation and amortisation.

Hi Rusmin, I tried plucking the numbers together but couldn’t get the amortization rate of 3 years. Could you please correct me if I’m wrong? Thank you.

property, plant and equipment (from Balance Sheets):

157,408 (Year 2012), 88,898 (Year 2011)

Yearly depreciation and amortization (from cash flow statement):

amortization of intangible assets – 618 (Year 2012), 442 (Year 2011)

Depreciation of Property, Plant & Equipment – 30,379 (Year 2012), 23,920 (Year 2011)

2012

157,408 / 30,997 = 5.08

2011

88,898 / 24,362 = 3.6

Your number is right in 2011. If you do it on 2010, the number should be even lower at around 3.4. However, since 2012, BreadTalk started to invest in the properties IHQ, the PPE has since grown. So this have distorted the answer in 2012 to 5 years. It is no longer a good comparison anymore as most F&B players do not own or invest in properties.

I see, thought i got it wrong or smth. Thanks alot Rusmin for the clarification! :)

Hi Rusmin, moving forward with Breadtalk valuation for post 2012, do we still use CAGR or use P/B method? At which point do we treat a company as asset-heavy?

Sorry, I think I saw the answer in P/CF valuation method. That would be the correct valuation method for Breadtalk due to its grown PPE & ammortization, moving on?

Yep, I still prefer to use their operating cash flow for the valuation as a better option.

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