Petra Foods’ 3Q13 results met our expectations: revenue increased 10.4% YoY to US$126.9m while core operating profit and PATMI grew 5.4% to US$20.9m and 3.9% to US$14.8m, respectively. For 4Q13, we expect Petra to end the year on a positive note. An expected Indonesian ruppiah appreciation should stem currency losses and aid its gross profit margin while demand should stay stable at current levels on a QoQ basis in its key markets of Indonesia and the Philippines. In terms of its share price, we feel that Petra has over-corrected since its lacklustre 2Q13 results. With our forecasts largely unchanged, we leave our fair value estimate of S$3.95 unchanged and upgrade Petra to BUY on valuation grounds.
3Q13 results in-line with expectations
Petra Foods’ 3Q13 results met our expectations with revenue increasing 10.4% YoY to US$126.9m. However, on a QoQ basis, the increase was only 1%, which reaffirmed our notion that sales growth this year would be slightly subdued following a fuel hike in Indonesia during 1H13. Similarly, 3Q13 core operating profit grew 5.4% YoY (-1.5% QoQ) to US$20.9m while PATMI improved 3.9% YoY (+0.2% QoQ) to US$14.8m.
Slight margin dip not a concern
In terms of gross margin, we deem 3Q13's 32.4% (-1.3ppt YoY; -0.5ppt QoQ) to be reasonable in light of the higher cost inflation in its key markets (e.g. fuel hikes in Indonesia, weakening regional currencies). A gross margin of 32.0% remains our comfort threshold. That said, with Indonesia's central bank unexpectedly raising its key interest rate yesterday to address a burgeoning current account deficit, we can hopefully see GP margin inching higher for 4Q13.
Petra should end FY13 on a positive note
As we head towards 4Q13, the negative impact of the fuel hike on Indonesian consumers should start to wear off. Recent surveys indicate that this possibility as consumer confidence remains high and has, in some instances, actually recovered since dipping slightly a quarter ago. Furthermore, the Indonesian rate hike should not have any impact on chocolate confectionery consumption viś-a-viś other more expensive consumer discretionary products. In fact, Petra could also benefit via an appreciation of the Indonesian ruppiah.
Upgrade to BUY on valuation grounds
In over view, Petra's share price has over-corrected since its lacklustre 2Q13 results (-13.8% since mid-Aug). With our FY14/15F forecasts largely intact, we leave our fair value estimate unchanged at S$3.95 and upgrade Petra to BUY on valuation grounds.
Petra Foods’ 3Q13 results met our expectations with revenue increasing 10.4% YoY to US$126.9m. However, on a QoQ basis, the increase was only 1%, which reaffirmed our notion that sales growth this year would be slightly subdued following a fuel hike in Indonesia during 1H13. Similarly, 3Q13 core operating profit grew 5.4% YoY (-1.5% QoQ) to US$20.9m while PATMI improved 3.9% YoY (+0.2% QoQ) to US$14.8m.
Slight margin dip not a concern
In terms of gross margin, we deem 3Q13's 32.4% (-1.3ppt YoY; -0.5ppt QoQ) to be reasonable in light of the higher cost inflation in its key markets (e.g. fuel hikes in Indonesia, weakening regional currencies). A gross margin of 32.0% remains our comfort threshold. That said, with Indonesia's central bank unexpectedly raising its key interest rate yesterday to address a burgeoning current account deficit, we can hopefully see GP margin inching higher for 4Q13.
Petra should end FY13 on a positive note
As we head towards 4Q13, the negative impact of the fuel hike on Indonesian consumers should start to wear off. Recent surveys indicate that this possibility as consumer confidence remains high and has, in some instances, actually recovered since dipping slightly a quarter ago. Furthermore, the Indonesian rate hike should not have any impact on chocolate confectionery consumption viś-a-viś other more expensive consumer discretionary products. In fact, Petra could also benefit via an appreciation of the Indonesian ruppiah.
Upgrade to BUY on valuation grounds
In over view, Petra's share price has over-corrected since its lacklustre 2Q13 results (-13.8% since mid-Aug). With our FY14/15F forecasts largely intact, we leave our fair value estimate unchanged at S$3.95 and upgrade Petra to BUY on valuation grounds.
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