Super Group - Maybank Kim Eng 2016-08-14: Not So Super Results

SUPER GROUP LTD. S10.SI

Super Group (SUPER SP) - Not So Super Results

Despite the miss, we have become inured to Super’s poor performance.
On the bright side, it is still profitable with ample FCF. With P/E below mean and P/B approaching -1SD, there is value emerging in the stock given its strong net-cash position of SGD0.11/share and forecasted FCF of SGD0.04-0.06/share in FY16/17.

Catalyst could be M&A; either it utilises its cash to acquire growth/capability or someone sees cash-rich Super as an attractive target.
HOLD, TP reduced to SGD0.86 based on 18x FY17.

Super’s topline (-8% YoY) disappointed again in 2Q16, even below 1Q16’s already-low number. Branded Consumer (BC) fell 8% YoY as Super supported its long-time Myanmar distribution partner with lower prices following the Kyat’s drop.
Myanmar was the biggest underperforming 2Q market, down an estimated 22% YoY.
Food Ingredients did poorly as well (-12%) on weak consumer demand in Indonesia and the Philippines.
1H16 revenue/NP accounted for 44%/41% of full year forecast.

First, we liked the fact that margins improved YoY on a higher mix of higher-margin BC revenue. BC margins topped the range at near 45%.
Second, BC revenue ex-Myanmar was flat in SGD terms due to depreciation of MYR, THB and RMB, but grew high single-digits in Thailand and Malaysia, low teens in China and high teens in Singapore.
Singapore and Malaysia growth is due to new products such as Essenso.

We reduce FY16/17/18 forecasts further by 14%/12%/13%. However, we think value is emerging in Super.
At 17x FY17 P/E, the stock is currently trading below its long-term historical mean and is approaching 2011 levels.
It has net cash of SGD116m (SGD0.11/share) and generates >SGD60m in operational cashflow with c.SGD20m in capex a year.
While we see no catalysts yet, cash-rich Super is attractive as an acquisition target, or it could use its cash to acquire growth or capability.

Regional currencies less volatile and/or stable over next 12 months.
Better-than-expected market reception of higher-margin new coffee products.
Better consumer sentiment in major operating markets.
China outperforms. A high-potential Branded Consumer market currently contributing 10% to revenue.

Sustained increases in commodity prices such as CPO and coffee, its key raw materials.
Much stiffer competition in major operating markets such as Thailand and Myanmar.

Gregory Yap Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-14

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.86 Down 0.990