SUPER GROUP LTD
S10.SI
Super Group - Recent strong price performance will unwind
- 1Q16 net profit below expectations, at 21%/22% of our/consensus full-year forecast. After a margin-driven recovery in 4Q15, 1Q16 gross margin (37.5%) faded.
- With topline still mildly contracting, profitability was not as strong as in 4Q15. We see a stabilised environment, not a high-growth one.
- Management expects new products to drive consumer and ingredient sales.
- We trim our EPS estimates by 5-6%. Our target price (unchanged at 17x CY17F P/E) drifts lower to S$0.89. Maintain Reduce.
Short of expectations, run-up in the past three months will unwind
- 1Q16 net profit of S$11.6m (US$8.5m) was only at 21%/22% of our/consensus forecast.
- A good 4Q15, driven by a surprisingly big margin expansion, was the fuel that propelled the stock in the past three months.
- Given the share price surge and with no repeat in positive earnings surprise, we believe that some of the recent price performance will unwind ahead.
- 1Q16 profit was slightly dragged down by forex losses, but that was not the main issue.
Branded consumer and food ingredients stable-to-mildly declining
- Overall group sales declined 2% yoy, with similar performance in branded consumer (BC) sales (-2% yoy) and food ingredients (FI) sales (-3% yoy).
- BC sales were actually flat in constant currency terms, but posted a slight decline on the back of weaker baht and ringgit. Despite higher sales contribution from Malaysia, the Philippines and other regional markets, BC sales declined in Myanmar, Thailand and China.
- Meanwhile, FI sales were weaker due to China and the Philippines.
Margins still relatively high, but lower vs. a superb 4Q15
- Gross margin was 1.4% pts higher yoy, but the focus must surely be on sequential trends after the surprisingly positive showing in 4Q15. On a sequential basis, margin contracted by 1.1% pt.
- We believe the rising palm kernel and coffee prices may have a part to play.
- To be fair, 1Q16 margin was still on the high side of Super’s traditional gross margin range, but after such a strong 4Q, this was a tad unimpressive.
Dragged down a little by forex losses, but not the main factor
- Gross profit rose 2% yoy, driven by margins.
- But as SG&A increased 6% yoy (advertising and promotional activities to support the rollout of new products), EBIT dipped 5% yoy. Such a performance was much better than in 1H15 when EBIT declined 12-18% yoy; but after the raised expectations of 4Q15, this is not good.
- There was also a $0.7m forex loss in 1Q16, dragging down net profit growth to -15% yoy; making the figure looks worse than it is.
Too much, too fast; maintain Reduce
- We believe that Super Group’s profitability is broadly, holding up pretty well, after a disastrous 2015.
- However, a poor start to 2016 made us cut our FY16-18 EPS estimates by 5-6% still. This reduces our target price, still based on 17x P/E (peer average).
- Our grouse is that after a sterling 4Q15, the stock price had run up too much in the past three months.
- We believe the unimpressive 1Q16 results will be a de-rating catalyst hereon.
Kenneth NG CFA
CIMB Securities
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Jonathan SEOW
CIMB Securities
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http://research.itradecimb.com/
2016-05-11
CIMB Securities
SGX Stock
Analyst Report
0.89
Down
0.96
