SUPER GROUP LTD
S10.SI
Super Group - Caught in an ASEAN downturn
- 3Q net profit was below our and Street expectations, as both Branded Consumer (BC) and Food Ingredient (FI) divisions were weak.
- 3Q/9M profit (S$7.4m) only made up 15%/62% of ours full-year expectations. Worse, included in the profit was a S$1.2m government grant given for automation.
- BC is suffering from sales decline in Thailand and Malaysia. FI sales in Indonesia suffered a huge dent. Weak demand was compounded by falling ASEAN currencies.
- Reduce maintained. Target price cut by 13% (S$0.74), as we cut earnings forecasts by 13-20%.
■ Weak end markets plus falling ASEAN currencies
- Super Group continued to disappoint, as the BC and FI divisions suffered yoy declines of 4% and 11%, respectively. This was due to weak consumer spending in key markets (Thailand, Malaysia for BC and Indonesia for FI), further compounded by falling ASEAN currencies (Ringgit, Ruppiah and Kyat).
- 3Q net profit of S$7.4m was made to look better than reality, as a S$1.2m government grant shored up the quarter. Else, it was ugly. BC: key market Thailand is not doing well, Malaysia worse
■ The drag on BC sales (-4% yoy) mostly came from Southeast Asia (-11% yoy).
- Thailand is not doing well, while Malaysia fared worse. Weak currencies made things worse, but ex-Ringgit, Southeast Asia sales still declined 6-9%.
- Bright spots were China (30+% yoy due to introduction of more SKUs) and positive growth in Myanmar.
- Myanmar was a surprise, as we were expecting a decline due to its falling Kyat, but Super benefited from volume growth as it lowered its US$ prices to compensate for the Kyat.
■ Food Ingredients: much lower due to Indonesia
- FI sales was 11% lower yoy, driven by a 22% decline in Southeast Asia. The biggest drag came from Indonesia as its economy remains soft. Super’s US$ denominated prices in Indonesia and a weakening Rupiah acted as another blow, with customers delaying purchases until the macro picture improves.
- The roll-out of premium FI products (nutritional oil powder, botanical herbal extract) has also failed to materialise into sales. Utilisation rates at factories for these products remain low (less than 50%).
■ Depending on new products in an increasingly ugly environment
- Super has introduced two new products in its BC segment, 1) Essenso and 2) Owl Kopitiam Roast. These were introduced in late 3Q/early 4Q and are targeted at the mass premium category, as Super intends to ride on Asia’s rising middle income group. As the group rolls out these products, SG&A should also rise, and 3Q’s level will likely form the base case for the next year (guidance is 24-25% of sales vs. ~22% historically).
■ Reduce with lower target price
- We believe Super remains sandwiched in today’s weak consumer incomes in ASEAN and rising inflation (caused by weak local currencies).
- We maintain our Reduce rating, and reduce our P/E-based target price (15x CY17 P/E vs. previous 16x FY16 P/E, peer average) to S$0.74, from S$0.85 previously, as a result of our lowered earnings forecasts.
- Our new target price has been rolled forward to an end-16 target price.
Kenneth NG CFA
CIMB Securities
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Jonathan SEOW
CIMB Securities
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http://research.itradecimb.com/
2015-11-13
CIMB Securities
SGX Stock
Analyst Report
0.74
Down
0.85
