- 1Q14 results were below expectations. An across-the-board YoY decline in revenue and profitability makes it difficult to pick out any real positives this quarter.
- Despite having lowered guidance last quarter for its branded consumer business, we think 5-10% growth would be difficult to achieve for FY14E.
- In our view, share price has factored in near-term challenges; maintain HOLD, with a lower TP of SGD3.00.
1Q14 revenue fell 6% YoY, with similar 6% declines for both the branded consumer and food ingredients segments. Gross margin was kept at 37.5% QoQ, but with higher operating expenses, core net profit fell 20.4% YoY to SGD17.3m.
The branded consumer segment saw sales decline across key ASEAN markets, while China, a small contributor, did better. Super is likely to counter the increasingly competitive landscape with more aggressive promotions in the second half, but we expect it to still fall short of its 5-10% growth guidance.
For the food ingredients segment, its sales distribution restructuring in North Asia bore some fruits, but ASEAN sales disappointingly declined 20% YoY. New product lines like Botanical Herbal Extract and Freeze Dried Coffee may compensate.
Maintain HOLD
We believe the company is taking positive steps by focusing on rebranding and new innovations to claw back its competitive edge, but near-term outlook appears challenging. We cut FY14E-FY16E by 4-8. Given the reduced resiliency in its earnings, we now peg our TP to 20x FY14E (previously DCF) which is a slight premium to historical mean. In our view, a higher P/E multiple to historical P/E mean of 17x is warranted given its more diversified revenue streams. Our new TP is SGD3.00 and we maintain HOLD.
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