Super Group

Kim Eng on 22 June 2012

Institutional investments sent share prices up and up. Super’s share price has rallied very strongly, up 65% YTD. We believe this was largely fuelled by an increase in institutional shareholdings, as funds exhibited a lower risk appetite and flocked to defensive businesses. For example, company filings revealed that Capital Group bought 3.2m shares on the open market between 7 May and 14 May, and this alone accounted for more than 80% of stock turnover during the period.

Higher-than-expected sales from ASEAN markets. The stronger-than-expected sales from emerging ASEAN markets have been a positive surprise in 1Q12, despite some lingering negative impact from last year’s Thailand floods. We have raised our revenue growth assumptions for the branded consumer segment, expecting at least 11-12% CAGR over the next three years.

Thailand, Malaysia the key growth drivers. These markets have been Super’s key growth drivers over the past few quarters, being both the largest revenue contributors as well as showing the highest percentage growth. In mid-2011, Super took back the sole distributorship in Malaysia, and sales in the country have since grown at double digits. This alleviates some of our concerns about its sole distributorship model in most of its markets.

New markets to conquer. Super currently has a low market presence in Indonesia, the Philippines, Vietnam, Cambodia, China and Japan. These countries provide scope for market share gains going forward, although the group would still derive the bulk of its revenue from its five key markets where it is ranked top three in terms of market share.

Stock has re-rated, maintain HOLD. Back in 2010, Super traded at a sharp 40% discount to its peers. With a renewed focus on its core branded consumer business and a new engine of growth from ingredients sale, the stock has re-rated. Going forward, however, stock price gains will likely have to be more earnings-driven. We raise our earnings forecasts by 6-10%, with a new TP of SGD1.95, based on a higher-than-historical 17x PER. We continue to like Super’s long-term fundamentals, but do not see current valuations as an attractive entry price. Maintain HOLD.