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Super Group - Getting back on its feet

Shared By Stock Fanatic on Sunday, March 1, 2015 | 1.3.15

Super Group’s 4Q14 net profit of S$25.9m was 16% above our expectations and 8% above consensus due to: 
1) a good recovery in its Branded Consumer (BC) markets, 

2) strong Food Ingredients’ (FI) margin expansion and 

3) S$6.5m of non-core gains. 

Excluding the non-core gains, 4Q performance was good and showed that Super is starting to find its feet, after three very poor quarters. We raise our FY15-16 EPS estimate by 14% to factor in positive data points, hiking our target price to S$1.25 (17x CY16 P/E, 5-year mean). A weak share price in 2014 plus encouraging data points in 4Q, warrant a less negative stance. We upgrade our call from reduce to Hold. Potential re-rating catalysts are higher-than-expected margins from new products.

Recovery in core business of Branded Consumer
4Q revenue was flat yoy, with higher BC sales (4Q14: S$97.2m, 4Q13: S$91.3m) partially offset by lower FI sales (4Q14: S$56.5m, 4Q13: S$62.0m). BC saw single-digit growth in the core markets of Thailand, Malaysia, the Philippines and Greater China. FI sales were lower mainly due to lower sales in Indonesia. The return of BC sales growth is a relief, as various markets have been hit by currency effects, a slowdown in consumption patterns and competition in preceding quarters.

Food ingredients a bigger positive, in our view
While the BC topline growth is a welcome positive, our estimates show that the expansion in FI gross margins was equally helpful. Management disclosed that FI gross margins expanded from the 20-25% range in 3Q14 to the 23-28% range in 4Q, helped by the easing of raw material prices such as palm kernel oil. In addition to BC’s revenue growth recovery and FI margin expansion, other income also booked S$6.5m of non-core gains, from the sale of its factory premises in Singapore, as the group shifted its production base to Malaysia.

Technical Analysis
Daily Chart
New products to differentiate
Management narrated its strategy to focus on branding, innovation and diversification. Its innovation efforts are expected to bear fruit in FY15, as investments in botanical herbal extracts and liquid glucose syrup solids (LGSS) will see their capacity coming on-stream in 2015. The latter is a key ingredient in non-dairy creamer (NDC) and we expect the completion of an LGSS facility next to their NDC plant, to further enhance FI margins in 2015. (Read Report)

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Source : CIMB Research

Posted on Sunday, March 1, 2015 | 1.3.15
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