Super Group - No signs of recovery

■ 2Q15 below expectations as revenue and operating margins disappoint

■ Hopes of recovery may be delayed to after 2H15

■ Cut FY15-17F earnings by 14-16%

Maintain HOLD with lower S$1.05 TP

Below expectations
Revenue and margins were below expectations. 2Q15 revenue (S$126m, -5% y-o-y) and earnings (S$10.5m, -30%) were below our estimates. Sales were weak across both business segments, affected by Philippines and China markets. Margins were also below expectations on higher than expected costs. 1H15 earnings formed just 38% of our initial FY15F earnings. An interim DPS of 1 Scts was declared.

Sales affected by Philippines and China
Branded consumer sales were dragged by streamlining of product portfolio in the Philippines even though sales in core markets of Myanmar and Thailand picked up. Super has reduced the number of SKUs in the Philippines and will be concentrating on a few key products categories going forward. Food ingredients sales declined mainly due to lower sales in Philippines and China.

Expect delayed recovery
We believe earnings recovery momentum will be delayed beyond 2H15F. Even though new products have been lined up for launch going forward, regional consumer sentiment remains tepid. We are hence not anticipating strong earnings recovery in the coming quarters. Furthermore, there could be earnings risk in 3Q15 from recent floods in Myanmar that may have disrupted existing distribution channels. El Nino remains a longer term threat to margins.

Cut FY15-17F earnings by 14-16%; maintain muted 7-8% earnings growth for FY16F and FY17F
We lower our FY15-17F earnings forecast to account for disappointing earnings in 1H15. We lowered our FY15F revenue expectations by 5.5% and earnings by 14% on higher opex and lower margins. Hence, earnings growth is expected to be muted at 7-8% in FY15-17F.


Technical Analysis
Daily Chart
Maintain HOLD with lower S$1.05 TP
Post earnings revision, we lower our TP based on 20x FY16F EPS (in line with its average valuation over the last four years) from S$1.25 to S$1.05. Maintain HOLD. (Read Report)

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Source : DBS Group Research

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