Super Group - RHB Invest 2015-12-02: Weak Blend Of Profit

Super Group - RHB Invest 2015-12-02: Weak Blend Of Profit SUPER GROUP LTD S10.SI 

Super Group (SUPER SP) - Weak Blend Of Profit 

  • We believe competitive pressure remains intense in its key branded consumer markets. 
  • Without a breakthrough in major new products or markets, substantial profit growth is unlikely to materialize at this stage. 
  • In the near-term, investment costs to promote its new Essenso MicroGround Coffee may put pressure on margins. 
  • We maintain SELL, with a TP of SGD0.67 (maintained). 

 Competitive pressure still intense. 

  • We believe competitive pressure, especially from market leader, Nestle (NESN VX, NR), remains intense in its key branded consumer markets. 
  • With a lack of growth in mature core markets such as Singapore and Malaysia, players are likely to continue jostling for market share. 
  • For food ingredients segment, lower demand from customers for non-dairy creamer in China and Taiwan since 2014 has not been adequately replaced by other geographies as yet. 

 Not helped by weak regional currencies. 

  • Weakening of regional currencies, especially the Malaysian Ringgit and Myanmar Kyat will continue to pull down revenue (in SGD) as well as margins. Key ingredients include sugar, cocoa and derivatives of crude palm oil are typically sourced in USD terms. 

 Cost investments in the near-term. 

  • The company launched a new instant coffee product in November 2015, 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 to create new products around this pillar in 2016. 
  • Together with building up of its distribution for food ingredients, this will involve substantial investment costs. 

 Higher tax to eat into profitability. 

  • We expect effective tax rate to remain substantially higher in 2016F (compared to pre-2015). This will make profit recovery more difficult in the near-term. 
  • To justify a positive re-rating, Super has to make a breakthrough in either new products or markets. 
  • Our TP of SGD0.67 is pegged to 15x FY16F. Maintain SELL.

James Koh RHB Research | http://www.rhbinvest.com.sg/ 2015-12-02
RHB Research SGX Stock Analyst Report SELL Maintain SELL 0.67 Same 0.67