PETRA FOODS LIMITED
P34.SI
Petra Foods - Small Sweetener For Shareholders
- We think the stock is still not worth revisiting at current valuations (51x FY16F P/E), even though profitability may gradually improve after it barely posted a profit in 4Q15.
- However, Petra Foods’ balance sheet and cash flow remain healthy, and it has announced a small sweetener for shareholders in the form of a capital reduction exercise that implies a yield of 5.6%.
- Maintain SELL, with a TP of SGD2.00 (19% downside).
Petra has ceased its Singapore distribution business.
- This comes on the heels of it shelving less profitable agency brands in Indonesia earlier in 2015.
- We believe this signals an on-going business restructuring process that would enable it to focus on its own brands, as competition for modern trade shelf space intensifies and internal resource allocation for the marketing dollar becomes more important.
Settlement of dispute with Barry Callebaut.
- Post the final settlement of its dispute with Barry Callebaut in Aug 2015, Petra Foods aims to initiate a capital reduction in place of a special dividend, due to its insufficient capital reserves.
Barely in the black.
- Petra Foods’ profit turned slightly positive in 4Q15, but profit margins remain under pressure with the higher USD-denominated cost base.
- With the weakness in demand from its distribution channels, we think it would be difficult for the company to push up prices in the near term.
- A risk would be the further depreciation of the IDR against the USD.
Maintain SELL.
- We cut our FY16F-17F earnings further by 21% and introduce our FY18 numbers.
- Maintain SELL, with an unchanged DCF-derived TP of SGD2.00, implying a 47x 2016F P/E.
- We expect Petra Foods to record an earnings recovery in the longer term, given its strong market share in Indonesia.
James Koh
RHB Invest
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http://www.rhbinvest.com.sg/
2016-02-24
RHB Invest
SGX Stock
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