Petra Foods

Petra Foods: Daiwa released an unrated note today on Petra Foods.

Petra’s sales come from Indonesia (72% of FY14 revenue) as well as regional markets (28%) which include Philippines, Singapore and Malaysia.
Management said its products fill 60%-70% of the shelf space at supermarkets and it prices its products about 20% lower than international brands. It plans to introduce 15-20 new items per year, including variations of existing offerings or brand new products.

Revenue/net profit has recorded an 8.2%/12.2% CAGR over the past 5 years (excluding discontinued business and one-off expense related to a divestment dispute). However, in 1Q15, revenue fell by 13.5% YoY, on weaker consumer sentiment and the discontinuation of less-profitable agency brands. Margins were affected by higher raw material costs due to the weaker IDR. About 70% of its input cost is priced in USD.

Management is looking to broaden its overseas footprint and said this would be acquisition/partnership driven. Key reasons are: 1) brand recognition and 2) palate. Customers opt for brands they are familiar with and these products tend to have a distinct taste. The palate is hard to alter as consumers age. This is the reason Petra’s best-selling chocolate, Silver Queen, is not sold outside Indonesia as consumers are more familiar with international brands such as Cadbury in overseas markets.
Petra’s cocoa ingredients business was sold to Barry Callebaut AG (BC) on 30 June 2013 for net gain of US$63.5m. Since then, BC has sought a closing-price reduction and other claims amounting to about US$116m. Petra is challenging the claims, but no resolution has been reached as yet.

Petra’s stock is trading at an FY15E PER of 30.2x, with an FY15E dividend yield of 2.5%.