SUPER GROUP LTD
S10.SI
Not yet a turnaround
- Although Super Group’s share price has fallen 9% in the last three months, we see no cause to turn positive yet.
- The trend of earnings downgrades is still not abating.
- 2Q15 profit (S$10.5m) was below our and street expectations.
- 1H15 made up only 37% of our and the street’s full-year estimates due to persistent sales weakness, negative operating leverage and higher tax rates.
- We cut FY15-16 EPS by 19-22%.
- Our target price (S$0.85), still based on 16.2x CY16 P/E (5-year mean), follows the dwindling earnings down.
- Maintain Reduce.
We do not see a turnaround yet.
- Catalysts for underperformance include the need for the street to take the cleaver out on market estimates once more, amid weak coffee consumption in Asia, weak currencies, and intense competition.
- Branded consumer trends same as 1Q, Ingredients weaker Overall 2Q15 sales fell 5% yoy, with equal impact from Branded Consumer (BC, -4% yoy) and Food Ingredients (FI, -5% yoy).
- The decline in BC sales was from markets such as the Philippines (PH) and Eastern Europe, but partially offset by improved sales in its core markets of Thailand, Myanmar and China.
- The trends were similar to 1Q, so this was not much of a surprise.
- The weaker-than-expected segment was FI.
- In the FI division, whilst the continued slump in East Asia markets (-8% yoy) was not a surprise, we read the new weakness in Southeast Asia markets as a new worry.
- Previously in 1Q, there was still FI sales growth from both Indonesia and PH, but in 2Q, Southeast Asia sales also dipped 4% yoy, dragged down by PH.
- We had previously been hopeful that the rollout of premium products (Nutritional oil powders, botanical herbal extracts) would have some positive effect, but this did not materialise.
GP margins held up but EBIT margins decline
- 2Q15’s GP margins (35.5%) eased slightly qoq, though it held up yoy.
- The problem was that as sales slipped, operating expenses could not be trimmed as quickly, particularly as new facilities came in.
- The effect was falling EBIT margins (2Q15: 12.3%, vs 2Q14: 13.3%) and a poor delivery on the EBIT line.
Taxes higher than expected
- Even as EBIT missed expectations, the bottomline was dealt another blow from higher effective tax rates, as some tax incentives expired.
- High 2Q15 effective tax rates (28%) was another factor for the miss, though that alone was not the only reason for our earnings cuts; it was the tough operational environment.
Kenneth NG CFA | Jonathan SEOW CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-11
0.85
Down
1.10
