Petra Foods

Petra Foods: (S$3.24) No chocolate rush given weak consumption and rupiah
In the past week, four local brokers have slashed their target prices for Petra Foods by an average 28% to $2.54.

This follows the chocolate manufacturer's weak 2Q15 results, which saw net profit slump 40% to US$7.4m on 13 Aug as sales in Indonesia, its main market declined 15.7% despite the run-up to Lebaran festivities, hurt by weak spending and IDR depreciation. In constant currency terms, sales was down 4.8%.

The prolonged downturn in consumption, particularly from the lower-income group (~50% of sales), led to further inventory de-stocking by its customers, which dented sales.

In addition, its inability to pass on higher costs stemming from the rising USD (~60% of raw materials) led to margin contraction.

With these two factors persisting in the current quarter, pricing and margin pressures are expected to intensify and lead to negative operating leverage.

At the current price, valuations are rich at 28.8x forward P/E, compared to its five-year average of 24.1x.