Super Group

AmFraser Research, May 14

SUPER delivered yet another strong quarter where Patmi (profit after tax and minority interests) grew 25.2 per cent y-o-y. Earnings were largely in line with our expectations, meeting 21.8 per cent of our full-year estimates. Growth in the food ingredients (FI) segment contributed the bulk of the sales growth, growing 33.1 per cent y-o-y to S$38.5 million for the quarter. Sales from the FI segment formed 29 per cent of entire group sales in the quarter, compared with just 23.7 per cent a year ago.

Branded consumer (BC) sales stagnated at S$93.9 million for the quarter, growing only about 1.3 per cent y-o-y. Stronger markets were Thailand, Philippines and China, which registered double-digit growth rates. Other emerging markets such as Malaysia, Indonesia and Myanmar suffered dipping growth from increased competition and racial riots (in the case of Myanmar). In light of increased competition and uncertainty in these environments, we might continue to see muted growth for the BC segment.

On May 6, Super announced the disposal of its 35.3 per cent equity stake in Sun Resources Holdings Pte Ltd, which owns the Changzhou, China, factory, for S$26 million. The direct P&L (profit and loss) impact would be a fair value gain of S$16 million in FY13. On another front, Super injected US$20 million or RM61.93 million (S$24.8 million) in its wholly owned subsidiary, Super Continental Pte Ltd, to fund the Botanical Herbal Extract Plant in Johor Baru, Malaysia, and for working-capital purposes. These transactions should net off cash-flow impact to the group.

We now value Super at 24x FY14 forecast's EPS of S$0.218 (instead of at FY13 forecast's core EPS of S$0.182), giving us a fair value of S$5.23. However, we note that Super's share price has sharply re-rated to levels that provide only approximately 10 per cent return (including dividends) to investors based on our fair value.

We believe Super's growth prospects, along with its strong financial position and brand value, have mostly been priced in. Super currently trades at 26.6x FY13 forecast core EPS. With that, we downgrade Super to "hold".

HOLD