Super Group

Super Group: (S$1.11) Eyeballing El Nino's effects
Prices of soft commodities, including coffee, CPO and sugar, may be inflated by 10% in FY16, depending on the severity of El Nino conditions.

Weather patterns around the globe are being disrupted with heavy rains and flooding in southern US and parts of Latin America, along with droughts in Australia and Asia.

Maybank-KE estimates that instant coffee manufacturer Super's gross profit could be dragged by the higher cost of raw materials, with robusta coffee being the largest cost component, making up 30% of each coffee sachet.

The house believes that coffee prices should be capped due to bean hoarding by farmers, which should help offset the potentially smaller crop.

Further, impact of higher costs would be moderated by the launch of new premium products in Super's key markets come 2H15, including four new flavoured coffee mixes in China, on the back of the stronger seasonality.

The company is also stocking up more raw materials during current low prices, which is expected to buffer margins for at least 2-3 quarters in a worst case scenario.

Maybank-KE thinks that Super stands a good chance of recovery this year, supported by healthy revenue growth in core markets, backed by a return innew markets, on the group's comprehensive rebranding efforts.

The house maintains Buy with a TP of $1.57.