Super Group - DBS Research 2016-03-23: Earnings growth priced in

SUPER GROUP LTD S10.SI

Super Group - Earnings growth priced in

We downgrade SUPER to HOLD from BUY after our upgrade post 4Q15 results.
Our TP of S$0.97 based on 20x FY17F earnings largely prices in earnings growth prospects for now.
We have seen the stock surge by c.40% post our upgrade and at these levels, we believe upside is capped.
Valuations are now at near average of its 4-year mean at 22.7x FY16F PE.
Asian branded F&B peers are trading at 21x FY17F PE, in line with SUPER’s current FY17 valuations.
We roll over our TP to 20x FY17F earnings, which gives rise to our TP of S$0.97.

We expect growth to be supported by better sales traction from new product launches and stable margins from low input prices. However, earnings growth projection is low at 4-6%.
ASEAN’s outlook will be challenged by weak MYR, sluggish consumption in Thailand, weakening Peso, and lower GDP growth in Singapore. These will continue to dampen earnings growth.
On a sequential basis, we also note that top-line sales decline has exacerbated from 0% y-o-y in 4Q14 to -8% y-o-y in 4Q15.
Going forward, the success of new product launches to improve sales and earnings are also subject to the market’s response and acceptance.
Our earnings growth outlook is muted, at least until earnings recovery is proven.

We raise our target price to S$0.97, based on 20x price earnings multiple on FY17F earnings.
Upside is capped even after factoring in FY17F’s growth prospects.

We expect SUPER to enjoy the benefits of lower coffee bean prices of c.US$1,500/mt to US$1,700/mt compared to an average of US$2,000 in 2014. This should aid margins going forward.
Poor weather could impede our positive margin outlook and derail our earnings estimate for the stock.

Alfie Yeo DBS Vickers | Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2016-03-23

DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 0.97 Up 0.91