Super Group - RHB Invest 2016-05-31: Market Leader In Myanmar

Super Group - RHB Invest 2016-05-31: Market Leader In Myanmar SUPER GROUP LTD S10.SI 

Super Group - Market Leader In Myanmar

  • We believe Myanmar presents significant growth opportunities for Super Group, which is currently the market leader for instant coffee especially in traditional trade segments. Its products are widely accepted, and demand is likely to be fuelled by a higher-income population. 
  • We also think, in the meantime, that the company will have to step up efforts to fend off competition – especially from players like Nestle.

Myanmar is the second biggest market for Super Group. 

  • Myanmar ranks behind Thailand in terms of sales contributions for the company – and it accounts for an estimated 20% of its branded consumer sales (and 15% of group sales). The company has been in Myanmar since 2001, through a 60-40 JV with a local fast-moving consumer goods (FCMG) distributor. 
  • In recent quarters, revenue from Myanmar remained resilient despite the depreciation of the local currency – which suggests that its sales volume is growing.

Strength lies in distribution, but Nestle is a challenger. 

  • Super Group is the market leader in Myanmar, and management believes it owns a 40-50% market share currently. 
  • Given the predominantly traditional trade channels in Myanmar, we think its biggest strength in this market lies in its partner’s nationwide distribution network and the JV company’s ability to sell – even in rural villages. However, we believe that in modern trade channels, it is facing increasing competition from rivals (especially Nestle) .

Strategy to emphasise on innovating new products. 

  • Super Group has put significant emphasis on re-branding in recent years, and related activities have centred around launching new products such as Essenso Microground Coffee
  • We believe this is important to help the company maintain market share in its key markets, considering the intense competition in this product space. 
  • Investments in upstream capabilities in recent years should also help cushion possible increases in ingredient prices or price competition.

Profitability may have bottomed out. 

  • The company recently arrested a revenue decline (since early 2015) in its core branded consumer segment. With a possible margin uptrend due to the integration of upstream capabilities, as well as weaker commodity prices, we believe its profit decline has bottomed out. 
  • Our TP of SGD0.80 is pegged to 18x FY16F. 
  • Key upside/downside risks include volatile commodities prices, changes in the macro-economic environment and competition in its key markets such as Myanmar and Thailand.

James Koh RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-31
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