Petra Foods’ 1Q15 results were disappointing as revenue was down 13.5% YoY to US$106.2m and formed 20% of our FY15 forecast. PATMI stood at US$7.7m, which was 42.8% lower YoY and only constituted about 13-14% of our and the street’s FY15 projections. Unlike previous quarters, we saw a dismal showing in constant currency terms as both revenue and PATMI also saw a YoY decline of 9.3% and 39.1% respectively. The disappointment in underlying performance was mainly attributable to the weaker economic conditions in the group’s key market, Indonesia. In view of the above, we have reduced our FY15/16 PATMI estimates by 17%/5%, lowering our FV estimate from S$3.78 to S$3.61, based on 30x blended FY15/16 EPS. Given the downside potential, we downgrade our hold rating to a SELL.
Tough economic environment
Petra Foods’ 1Q15 revenue was down 13.5% YoY to US$106.2m and formed 20% of our FY15 forecast. PATMI stood at US$7.7m, which was 42.8% lower YoY and only constituted about 13-14% of our and the street’s FY15 projections. Unlike previous quarters, we saw a dismal showing in constant currency terms as both revenue and PATMI also saw a YoY decline of 9.3% and 39.1% respectively. The disappointment in underlying performance was mainly attributable to the weaker economic conditions in the group’s key market, Indonesia. We saw a lower than expected GDP growth in 1Q at 4.7%, amid slow government spending and infrastructure development in Indonesia. These drove trade customers to reduce inventory levels and in turn negatively impacted the group’s sales.
Level of expenses to remain fairly high
OCBC Treasury Research expects IDR to continue depreciating against the USD, thus higher costs of raw and packaging materials will likely keep a toll on bottom-line. Selling and distribution costs remained fairly high as a percentage of revenue (14.5% vs. FY14: 13.5%) and this would continue as management plans to continue strengthening their route-to-market capabilities to support long-term growth, albeit at the expense of its bottom-line for now. Meanwhile the impact from Indonesia’s new social security program slated to start in July is not expected to be significant in terms of cost.
Indonesia is still key contributor
The group continued to see strong double digit growth for its own brands in the Philippines, driven by brand development programmes. While the group did not introduce any new products in 1Q, we could see some coming in the next few quarters to extend its portfolio. Importantly, Petra Foods’ market share in Indonesia remained above 50%, and consumer demand remained positive based on their study of shelf space data.
Estimates reduced
In view of the above, we have reduced our FY15/16 PATMI estimates by 17%/5%, lowering our FV estimate from S$3.78 to S$3.61, based on 30x blended FY15/16 EPS. Given the downside potential, we downgrade our hold rating to a SELL.
Petra Foods’ 1Q15 revenue was down 13.5% YoY to US$106.2m and formed 20% of our FY15 forecast. PATMI stood at US$7.7m, which was 42.8% lower YoY and only constituted about 13-14% of our and the street’s FY15 projections. Unlike previous quarters, we saw a dismal showing in constant currency terms as both revenue and PATMI also saw a YoY decline of 9.3% and 39.1% respectively. The disappointment in underlying performance was mainly attributable to the weaker economic conditions in the group’s key market, Indonesia. We saw a lower than expected GDP growth in 1Q at 4.7%, amid slow government spending and infrastructure development in Indonesia. These drove trade customers to reduce inventory levels and in turn negatively impacted the group’s sales.
Level of expenses to remain fairly high
OCBC Treasury Research expects IDR to continue depreciating against the USD, thus higher costs of raw and packaging materials will likely keep a toll on bottom-line. Selling and distribution costs remained fairly high as a percentage of revenue (14.5% vs. FY14: 13.5%) and this would continue as management plans to continue strengthening their route-to-market capabilities to support long-term growth, albeit at the expense of its bottom-line for now. Meanwhile the impact from Indonesia’s new social security program slated to start in July is not expected to be significant in terms of cost.
Indonesia is still key contributor
The group continued to see strong double digit growth for its own brands in the Philippines, driven by brand development programmes. While the group did not introduce any new products in 1Q, we could see some coming in the next few quarters to extend its portfolio. Importantly, Petra Foods’ market share in Indonesia remained above 50%, and consumer demand remained positive based on their study of shelf space data.
Estimates reduced
In view of the above, we have reduced our FY15/16 PATMI estimates by 17%/5%, lowering our FV estimate from S$3.78 to S$3.61, based on 30x blended FY15/16 EPS. Given the downside potential, we downgrade our hold rating to a SELL.
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