Singapore Daily Bulletin – 17/12/12

Big Box Revival News Sent TT International Shares Surging Up
TT International shares climbed 20 percent and closed at $0.178 on 14 December 2012 after the company announced a joint venture with two new partners to try to revive the stalled Big Box development in Jurong East. TT International is primarily a global trader in consumer electronics and is also known for its Akira line of electronic appliances. In a statement to the Singapore Exchange, the company said it had entered into an investment agreement with Prima Group and Utraco Investment that will see a combined commitment of $92 million from the two partners. Julia Tong, executive director at TT International said the deal showed the faith that investors had in the mega warehouse retail project. “When completed, the project will transform the retail scene in Singapore’s western region and will also boost our efforts to help enhance value to all shareholders of TT International.” Nonetheless, the deal is conditional on certain terms being fulfilled by 12 March 2013.

Significance: The latest deal to revive the long-delayed retail project serves as a reprieve for TT International as it had on three previous occasions failed to restart the development of Big Box, and has to-date sunk about $95 million into the project.

BreadTalk Targets China To Double Bakery Outlets Worldwide By 2014
If BreadTalk can survive the cost challenges in highly saturated and competitive markets like Singapore and Hong Kong, it will be able to tackle similar problems in China, said BreadTalk’s chairman and founder George Quek. He made the comments when asked about the group’s ambitious plans announced in September 2012 to have 1,000 bakery outlets worldwide by 2014, with more than half in China. This year alone, nearly 100 outlets have been opened across all three BreadTalk divisions – its core bakery business that contributes over half of revenue, food atrium segment, and its restaurants segment. This boosted the total number of outlets including franchises to about 630. In China, its bakery outlets mostly run by franchises, will double to more than 500 by 2014. Some 120 new outlets will open there next year.

Significance: Rising costs have hit BreadTalk’s bottom line causing weaker profit contribution from its bakery segment compared to last year due to higher food, labour and rental costs. As a result, gross profit margin declined from 54.4 percent to 52.3 percent for 3Q12, and subsequently, net profit fell 7.7 percent to $3.4 million compared to a year ago.

SIA Tinkles Strategy To Refocus On Asia For Growth
Cash-rich Singapore Airlines (SIA) is likely to need acquisitions or more partnerships as it reshapes its strategy to tap into the fast growing Asian markets and to counter stiff competition from Middle Eastern carriers. SIA’s cash pile stands at $4.7 billion, and that is set to increase after it agreed to sell a 49 percent stake in Virgin Atlantic to Delta Air Lines for US$360 million. SIA had written off the investment after purchasing the stake in 2000. The Virgin stake sale underpins the carrier’s shift away from Europe and the US and back to Asia as the outlook remains grim for Europe and the US remain mired in an economic crisis. China and India, with their gargantuan combined population of about 2.6 billion people, are obvious growth markets to tap. SIA has tried to buy into the two countries’ carriers previously, but without success. Separately, SIA is also taking on low-cost rivals with the launch of its own budget carrier, Scoot, and is expanding this line of business across the region.

Significance: Though SIA needs acquisitions, it has to reconsider its past strategy such as taking a minority stake in Virgin Atlantic. According to an analyst, unless SIA acquire somebody regionally where it can actually gain access to control, a minority stake in other airlines is generally a recipe for disaster.