■ El Nino could jack up prices of coffee, palm kernel oil &
sugar. Estimate respective GP impact of 3.8%, 2.5% & 1.2%.
■ New products in 2H15 & inventory stocking now should
moderate impact. No change to EPS.
■ Maintain BUY & SGD1.57 TP, at 1SD above 5-year 16x P/E
mean. Expect catalysts from potentially stronger 2H15.
Our commodities analyst warns that El Nino conditions are gaining
strength this year. He expects most soft commodities to be hit,
including coffee, CPO and sugar.
All else being equal, we estimate that Super’s FY16 gross profit
could be affected by 3.8%, 2.5% and 1.2% from 10% higher prices
for Robusta coffee, hydrogenated palm kernel oil (HPKO) and sugar
respectively. Coffee is its biggest input, accounting for 30% of the
cost of each coffee sachet. This is followed by 10% for HPKO.
Prices could rise once El Nino’s severity this year has been
confirmed and the impact on next year’s supply is clearer. Coffee
prices, however, should be capped by bean hoarding by farmers.
The hoarding should help offset a potentially smaller crop.
Super’s recovery this year is shaping up as we expected. 1Q was
weak; we expect the same for 2Q due to currency and growth
challenges in Malaysia and Myanmar. The two countries account for
9% and 14% of group sales respectively. But come 2H15, Super plans
to launch higher-margin products in its key markets that we
believe will moderate the impact. It is also stocking up more raw
materials during current low prices. This is expected to buffer
margins for at least 2-3 quarters.
What’s Our View
Although a post-GST consumer slowdown and MYR weakness in
Malaysia and kyat depreciation in Myanmar are challenges,
think that Super has a better chance of restarting growth this year
than it did in 2013-14. Maintain BUY with a TP of SGD1.57 or 1SD
above its 5-year historical mean P/E of 16x
. (Read Report)
Source : Maybank Kim Research
Labels: Consumer Sector, Super Group