Petra Foods’ 2Q14 reported results for continuing operations remained distorted by the weaker regional currencies against USD on a YoY basis. Reported 2Q14 revenue increased 5.3% YoY to US$131.8m while reported PATMI declined 10.6% to US$13.2m. However, in constant currency terms, growth is strong as 2Q14 revenue and PATMI increased by 20.9% and 10.4% respectively. On a half-year basis, reported 1H14 revenue increased 1.0% to US$254.6m, forming 45.5% of our FY14 forecast. Reported PATMI declined 6.2% to US$27.1m, making up only 41.3% of our forecast due to lower-than-expected EBIT margin. EBIT margin declined to 15.0% in 2Q14 (1Q14: 15.4%, 4Q13: 17.0%) due to a combination of cost pressures as well as investments in brand-building and strengthening routes-to-market capabilities. An interim cash dividend of 2.73 S-cents, or 50% payout ratio based on 1H14 net profit, was declared. Rolling forward our model to FY15F and using a PER of 28x, we maintain BUY with new fair value estimate of S$4.16 (previous: S$4.06).
2Q14 top line growth sustained in constant currency terms
Petra Foods’ 2Q14 reported results for continuing operations remained distorted by the weaker regional currencies against USD on a YoY basis. Reported 2Q14 revenue increased 5.3% YoY to US$131.8m while reported PATMI declined 10.6% to US$13.2m. However, in constant currency terms, growth is strong as 2Q14 revenue and PATMI increased by 20.9% and 10.4% respectively. The revenue growth is led by key emerging markets Indonesia (24.8% increase) and Philippines (>40% increase). On a half-year basis, reported 1H14 revenue increased 1.0% to US$254.6m, forming 45.5% of our FY14 forecast. Reported PATMI declined 6.2% to US$27.1m, making up only 41.3% of our forecast due to lower-than-expected EBIT margin. An interim cash dividend of 2.73 S-cents, or 50% payout ratio based on 1H14 net profit, was declared.
GP margin maintained but EBIT margin lower
Petra Foods’ gross profit (GP) margin remained steady at 31.9% in 2Q14 (1Q14: 31.9%, 4Q13: 31.7%) as Petra Foods was successfully in passed on higher raw material costs to consumers through adjusting selling prices and product sizes. On the other hand, EBIT margin declined in recent quarters to 15.0% in 2Q14 (1Q14: 15.4%, 4Q13: 17.0%). We understand this is due to a combination of cost pressures from rising minimum wage and fuel prices, as well as investments in brand-building and strengthening routes-to-market capabilities. We believe the investments are timely to tap on the Philippines and Indonesian markets with double-digit growth potentials. EBIT margin is also lower YoY (2Q13: 17.1%) due to HQ consolidation after divesting its Cocoa Ingredients business.
Open to explore other markets, but key market still Indonesia
Management shared that they are open to entering markets such as India and China provided a suitable partner is found. However, they will not do so at the expense of growing its Indonesian business. Rolling forward our model to FY15F and using a PER of 28x, we maintain BUY with new fair value estimate of S$4.16 (previous: S$4.06).
Petra Foods’ 2Q14 reported results for continuing operations remained distorted by the weaker regional currencies against USD on a YoY basis. Reported 2Q14 revenue increased 5.3% YoY to US$131.8m while reported PATMI declined 10.6% to US$13.2m. However, in constant currency terms, growth is strong as 2Q14 revenue and PATMI increased by 20.9% and 10.4% respectively. The revenue growth is led by key emerging markets Indonesia (24.8% increase) and Philippines (>40% increase). On a half-year basis, reported 1H14 revenue increased 1.0% to US$254.6m, forming 45.5% of our FY14 forecast. Reported PATMI declined 6.2% to US$27.1m, making up only 41.3% of our forecast due to lower-than-expected EBIT margin. An interim cash dividend of 2.73 S-cents, or 50% payout ratio based on 1H14 net profit, was declared.
GP margin maintained but EBIT margin lower
Petra Foods’ gross profit (GP) margin remained steady at 31.9% in 2Q14 (1Q14: 31.9%, 4Q13: 31.7%) as Petra Foods was successfully in passed on higher raw material costs to consumers through adjusting selling prices and product sizes. On the other hand, EBIT margin declined in recent quarters to 15.0% in 2Q14 (1Q14: 15.4%, 4Q13: 17.0%). We understand this is due to a combination of cost pressures from rising minimum wage and fuel prices, as well as investments in brand-building and strengthening routes-to-market capabilities. We believe the investments are timely to tap on the Philippines and Indonesian markets with double-digit growth potentials. EBIT margin is also lower YoY (2Q13: 17.1%) due to HQ consolidation after divesting its Cocoa Ingredients business.
Open to explore other markets, but key market still Indonesia
Management shared that they are open to entering markets such as India and China provided a suitable partner is found. However, they will not do so at the expense of growing its Indonesian business. Rolling forward our model to FY15F and using a PER of 28x, we maintain BUY with new fair value estimate of S$4.16 (previous: S$4.06).
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