Super Group

Super Group: ($1.07) 3Q14 earnings continue to be dragged by regional slowdown, higher costs Super Group posted yet another weak quarter, with 3Q14 net profit extending its slide to just $10m (-47% y/y, -33% q/q). Revenue dipped 3% y/y to $129.5m (-1.7% q/q), dragged by lower branded consumer sales (-6% y/y) in Singapore, China and Philippines markets, though mitigated by better food ingredients sales (+3% y/y) into the Asia markets, particularly the Philippines. Gross margin contracted 4.8ppt y/y to 32.0% due to higher raw material costs (mainly palm kernel oil), and a higher mix of lower margin food ingredients sales. In addition, operating expenses rose 8% y/y to $29.5m as the group stepped up advertising and promotional activities, particularly in Thailand, in tandem with the launch of new products. Despite the weaker top line, inventories continued to climb to $115.7m (+14% ytd, +2.8% q/q). While Super’s financials remain firm, cash holdings fell to $79.4m from $98.5m at end ’13, while the group took on new borrowings of $30.1m year-to-date (FY13: nil). Management acknowledged the current slowdown, and notes that market conditions will remain competitive amid raw material costs and regional currency fluctuations. Going forward, the group has embarked on a series of marketing campaigns and product launches for its core Thailand and Malaysia markets in 2H14. Management sees a gradual recovery in 4Q14 for certain core markets within the branded consumer segment, and notes that for the food ingredients segment, the group’s long term strategy is to diversify geographically and move into higher margin products such a Botanical Herbal Extracts and Nutritional Oil Powders. Still, unless Super’s earnings can stage a meaningful rebound, its valuations at 20.9x annualized 9M14 P/E continue to look relatively expensive.