OCBC Securities 2015-08-17: Petra Foods Limited - 2Q15; Inertia in earnings amid tough times. Maintain SELL.

SGinvestors.io

PETRA FOODS LIMITED P34.SI

Petra Foods: Inertia in earnings amid tough times 

 2Q15 PATMI fell 40% YoY 

 Consumption slowdown in Indonesia persists 

 Estimates and FV reduced 

Another weak quarter 

• Petra Foods' 2Q15 results were largely similar to 1Q. 2Q15 revenue was down 12.7% YoY at US$115.1m and formed 24% of our FY15 forecast. Sales this quarter was about 8% higher QoQ due to the run-up to the Muslim Lebaran festivities. PATMI was 40% lower at US$7.4m, and constituted about 15-16% of ours and the street’s FY15 projections. 
• In constant currency terms, both revenue and PATMI also saw a YoY decline of 3% and 29.2% respectively. 
• The underlying performance has continued to weaken, mainly attributable to the poor economic environment in its core market Indonesia, which resulted in a slowdown in consumption. Thus trade customers have reduced their inventory levels and adversely impacted the group’s sales. 

In tough times 

• Recent 2Q economic data on Indonesia stayed subdued with GDP growth at another low of 4.7%. OCBC Treasury Research noted some room for pick-up in growth in 2H and 2016 but did not deem prospects to be bright yet. 
• Management agreed that there are no clear signs of a turnaround in sentiments. Due to current uncertainty over unemployment, there was a decline in the latest consumer confidence data for July although it was during the Ramadan festive period. 

Adjusting prices and product rightsizing 

• Despite a slowdown in consumption in Indonesia, management has decided to raise prices for certain products slightly since Jul along with product rightsizing, due to the higher costs of cocoa butter. 
• Then again, Petra seems to have room to increase their prices, since their nonASEAN peers are likely to raise prices following the import tariff hikes on non-FTA partners that was implemented with effect from late Jul. 

Estimate and FV cut to S$2.74 

• An interim DPS of 2.86 S-cents was declared. 
• Meanwhile, given the cloudy outlook and on the view that margins will likely remain similar to 1H15, we have reduced our FY15/16 PATMI estimates by 27%/20% to more reasonable levels. This lowers our FV estimate from S$3.61 to S$2.74, based on unchanged 30x blended FY15/16 EPS. Maintain SELL.

Jodie Foo | http://www.ocbcresearch.com/ OCBC Investment Research 2015-08-17

SELL Maintain SELL 2.74 Down 3.61