- Downgrade to HOLD as we no longer believe the near-term outlook justifies current valuations. While 4Q13 results were an improvement from the disappointing 3Q13, several headwinds will curb earnings growth.
- Management has lowered its growth target in the branded consumer segment from 10-15% to 5-10% going forward, signalling intensifying competition in existing markets.
- A 1-for-1 bonus share issue does not change fundamentals, but may improve liquidity and provide technical support for the share price from here.
We downgrade Super to HOLD, and cut our FY14E/15E earnings estimates by 11%/9% and our DCF-based TP to SGD3.72 from SGD4.45. The outlook in most of its core markets is growing more mixed. Sales in Myanmar improved in 4Q13 after Super reduced prices to its local JV partners. However, we believe growth is likely to remain muted without significant increases in per capita income. We see growth at risk in Thailand due to the ongoing political standoff at a time when margins are under threat from increasing raw material prices since the beginning of the year.
Growth in new ASEAN markets remains challenging
Outside of its core markets of Thailand, Myanmar, Malaysia and Singapore in ASEAN, Super continues to grapple with growth challenges in the other member states. In the Philippines, it is experiencing a setback after a strong start to 2013. Revenue again contracted – by 40% YoY – in 4Q13. Management said although sales of the original flavours such as 3-in-1 instant coffee did well, new flavours were outsold by more innovative competitors. Going forward, the company plans to be more aggressive in its marketing and distribution efforts in the Philippines. In Indonesia, it has not been able to make a major breakthrough so far.
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