SUPER GROUP LTD
S10.SI
Super Group - Margins the star in 4Q profit bonanza
- After yoy net profit decline in 1Q-3Q, we believe the turnaround in 4Q will be the catalyst to arrest the underperformance since Apr. We turn positive on the stock.
- 4Q15 net profit (S$15.7m) was 78%/12% ahead of our and consensus expectations. Net profit more than doubled qoq, as BC sales recovered and margins rebounded.
- BC pick-up was due to new product launches and a return to growth in Thailand.
- We raise FY16-17 EPS by 10-12%. Our target price, still based on 15.5x CY17 P/E (historical average), climbs to S$0.86. Upgrade from Reduce to Add.
■ 4Q recovery likely to be the fuel for share price outperformance
- Super’s strong end to a difficult year brought FY15 net profit to 117%/104% of our and Bloomberg consensus estimates.
- Qoq, 4Q net profit of S$15.7m was much better than 2Q-3Q quarterly profit run-rate (S$7.4m-S$10.5m).
- Its share price has underperformed since May, after it was hit by poor BC sales in almost all ASEAN markets and FI sales in Indonesia crumbled. We believe its underperformance will end with 4Q results.
■ Branded Consumer had a good quarter, with new product launches
- 4Q BC sales were -1% yoy, better than -4% to -5% yoy in 1Q-3Q. Credit must be given to new products.
- Coffee remains the dominant revenue contributor (77% of BC sales in 4Q) but the push to sell higher-margin cereal products is showing success. Coffee sales in Singapore, Malaysia and China did well due to the rollout of new products (Essenso MicroGround Coffee).
- Its largest market, Thailand, also returned to sales growth in 4Q.
■ Food ingredients still struggling in both North and Southeast Asia
- Compared to BC, the FI division is still struggling.
- 4Q Southeast Asia FI sales declined as Indonesia sales struggled (weak economy, falling Rp) but this was offset by higher sales in the Philippines (new market).
- East Asia FI sales also declined yoy in 4Q due to ongoing difficulties in China, offset by some growth in Taiwan.
- Selectively, there seems to be small spots of recovery but the bigger FI markets continued to struggle in 4Q.
■ Gross margin was spectacular in 4Q
- The star for 4Q was obviously, margins. Gross margin jumped to a quarterly record high of 38.6% on the back of:
- lower input costs of raw materials (coffee beans, palm kernel oil),
- better sales mix, as BC sales improved, and
- likely higher margins for new coffee products and cereal.
- We believe all these factors helped boost gross margin.
■ It’s a margin story for now
- The consistent corporate strategy catchphrase in recent times is “Branding, Innovation and Diversification”.
- Super’s core markets remain challenging but it has shown success in rolling out higher-margin products in BC (flavoured coffee, Essenso, cereal) and in FI (freeze-dried coffee, herbal extracts). And earnings growth is driven by margins.
■ Upgrade from Reduce to Add
- We raise FY16-17 EPS by 10-12% for hikes in margin assumptions.
- We are 7-9% above consensus. If Super can repeat 4Q15 performance in the next few quarters, achieving S$60m net profit would be plausible.
- We believe the stock has come to the end of its earnings downgrade cycle, trading at 13.2x CY17 PE. Upgrade from Reduce to Add.
Kenneth NG CFA
CIMB Securities
|
Jonathan SEOW
CIMB Securities
|
http://research.itradecimb.com/
2016-02-24
CIMB Securities
SGX Stock
Analyst Report
0.86
Up
0.74
