SUPER GROUP LTD
S10.SI
Super Group (SUPER SP) - Grinding through the quarter
- 3Q15 results were below expectations, with recurring profit down 24% YoY to SGD7.8m.
- Weak consumption demand and more intensive competition affected both sales and margins and we expect this situation to persist for now.
- We are optimistic on the company’s major new product launch, but expects cost investments before returns.
- We reduce our TP to SGD0.67 (from SGD0.77), and maintain SELL.
Profit continues to decline.
- Excluding fair value gains on investment securities, 3Q15 recurring net profit was down 24% YoY to SGD, continuing a similar decline trend since the beginning of the year. This was on a revenue decline of 7% YoY as well as deteriorating margins.
- Gross profit margins of 32.6% was better than 3Q14, but a sequential decline.
- Operating expenses also inched up.
Revenue decline exacerbated by weaker currencies.
- Branded consumer segment was down 4% YoY, with no major product launches.
- Myanmar and Singapore showed stronger performance while the rest of its markets declined.
- China was a bright spot, with sales in East Asia up 38% YoY.
- Food ingredients segment was down 11%.
- Both segments were negatively impacted by weak currency.
Betting on Essenso.
- The company launched a new instant coffee product in November, called Essenso MicroGround Coffee. This uses a proprietary technique to grind Arabica coffee beans into an instant coffee format and is targeted at a higher price segment customers. This is the major pillar of its new product innovation drive and the company will continue creating new products around this pillar next year.
Cost investments in the near-term.
- We like Super’s strategic direction towards new product innovation and brand, both for its own branded consumer products and food ingredients sale. However, returns are likely to be further out, after substantial cost investments.
- In the meantime, consumer spending is likely to remain muted in its key markets.
- We cut our FY15F-FY17F earnings by 24-30%, and our TP correspondingly to SGD0.67 (pegged to 15x FY16F).
- Maintain SELL.
James Koh
RHB Research
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http://www.rhbinvest.com.sg/
2015-11-16
RHB Research
SGX Stock
Analyst Report
0.67
Down
0.77
