Petra Foods’ 1Q13 results fell short of expectations as growth slowed relative to the previous quarters. Revenue grew 7.7% YoY to US$127.4m while margin improvement boosted gross and operating profit. Excluding losses from its to-be-divested Cocoa Ingredients business, which resulted in an overall net loss for Petra, core PATMI came in at US$14.1m (+20.0% YoY but -4.3% QoQ). Based on the results, we reduce our FY13 projections to reflect more achievable revenue growth targets and to account for a net loss in 2Q13 from sustained losses in the Cocoa Ingredients business. In terms of valuations, Petra is currently trading at more than 36x FY13F / 32x FY14F PE. In our view, this premium is too expensive at this juncture, and we expect some profit-taking on the likelihood of overall losses for 1H13. Maintain HOLD with an unchanged fair value of S$3.88.
Branded consumer growth slows
Despite broad-based improvements in its core Branded Consumer business, Petra Foods’ 1Q13 results fell short of expectations as growth slowed relative to the previous quarters. Revenue grew 7.7% YoY to US$127.4m while gross and operating profit increased by 14.6% YoY and 23.1% YoY to US$41.4m and US$19.5m respectively. In terms of margins, gross profit and operating margins improved by 2 ppt and 1.6 ppt respectively to 32.5% and 15.3%, respectively. Core PATMI came in at US$14.1m (+20.0% YoY but -4.3% QoQ).
To-be-divested cocoa business still a drag
The discontinued cocoa ingredients segment remains under pressure due to over-capacity issues in the industry. Including its loss-making performance, Petra recorded a net loss of US$14.9m (1Q12: net profit of US$16.3m). While the sale will be concluded by Jun/Jul 2013 following the receipt of regulatory and shareholder approvals, Petra will still incur over-riding losses for 2Q13.
Projections lowered
In light of the 1Q13 figures, we scale back on our projections to reflect a more achievable revenue growth target – although our new forecast still calls for a double-digit increment for FY13. In addition, we include provisions for the incurrence of higher operating expenses (i.e. promotional and distribution expenses). These adjustments lower our FY13 top and bottom-line forecasts by 5% and 14%, respectively.
Current valuations expensive
While Petra will continue to enjoy success in its regional market penetration – particularly in the Philippines – it is currently trading at more than 36x FY13F / 32x FY14F PE. In our view, this premium is too expensive at this juncture, and we expect some profit-taking on the likelihood of overall losses for 1H13. Maintain HOLD with an unchanged fair value of S$3.88.
Despite broad-based improvements in its core Branded Consumer business, Petra Foods’ 1Q13 results fell short of expectations as growth slowed relative to the previous quarters. Revenue grew 7.7% YoY to US$127.4m while gross and operating profit increased by 14.6% YoY and 23.1% YoY to US$41.4m and US$19.5m respectively. In terms of margins, gross profit and operating margins improved by 2 ppt and 1.6 ppt respectively to 32.5% and 15.3%, respectively. Core PATMI came in at US$14.1m (+20.0% YoY but -4.3% QoQ).
To-be-divested cocoa business still a drag
The discontinued cocoa ingredients segment remains under pressure due to over-capacity issues in the industry. Including its loss-making performance, Petra recorded a net loss of US$14.9m (1Q12: net profit of US$16.3m). While the sale will be concluded by Jun/Jul 2013 following the receipt of regulatory and shareholder approvals, Petra will still incur over-riding losses for 2Q13.
Projections lowered
In light of the 1Q13 figures, we scale back on our projections to reflect a more achievable revenue growth target – although our new forecast still calls for a double-digit increment for FY13. In addition, we include provisions for the incurrence of higher operating expenses (i.e. promotional and distribution expenses). These adjustments lower our FY13 top and bottom-line forecasts by 5% and 14%, respectively.
Current valuations expensive
While Petra will continue to enjoy success in its regional market penetration – particularly in the Philippines – it is currently trading at more than 36x FY13F / 32x FY14F PE. In our view, this premium is too expensive at this juncture, and we expect some profit-taking on the likelihood of overall losses for 1H13. Maintain HOLD with an unchanged fair value of S$3.88.
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