Super

Super: (S$0.87) Weak 3Q15 with possible turnaround in 1H16
Super Group’s 3Q15 results trailed expectations as net profit slumped 25.6% y/y to $7.4m. 9M15 net profit stood at $31.6m, attaining just 60% of the street’s full year forecast.

Revenue slid to $121m (-6.6%) as both its branded consumer and food ingredients segments saw contributions declined.

Its branded consumer segment recorded revenue of $78.9m (-3.8%) dragged down by poor performance from Southeast Asia (-10.8%) with Malaysia, Thailand, and the Philippines leading declines mitigated from stronger performance from Myanmar and Singapore. Sales in East Asia (+37.7%) as well as other markets (+58.7%) such as Mongolia and the Pacific Islands also helped to pare declines.

Coffee continued to be Super’s major revenue generator (79%) even though product sales fell to $62m (-3.9%). Sales of Cereals and Tea remained relatively stable at $7.1m (no change) and $3.4m (+3%) respectively while sales of other products fell to $6.4m (-9.9%).

Its food ingredients segment slumped 11.5% to $42m on lower sales from Indonesia due to the weak IDR and soft economy there, mitigated by growth in sales in the Taiwan market.

Non-dairy creamer revenue tumbled to $26.2m (-28.2%) more than covering growth in its soluble coffee to $15.5m (+42.2%) and other products to $0.3m (3Q14: $0.1m).

Gross margin was flat at 32.6% (+0.6ppt) while bottom line was weighed on by:

1. Higher selling and distribution expenses of $15.7m (+3.3%) on sponsorship and promotional activities carried out for SG50 promotions as well as the launch of its Charcoal Roasted White Coffee.
2. General and admin expenses of $14.8m (+3.3%) due to higher depreciation charges on expansion project completion
3. Higher net other income of $1.5m (+193.4%) on higher government grants received
4. Higher taxes of $2.9m (+7.3%) despite poorer operating profit on the expiry of tax incentives enjoyed by some overseas subsidiaries as well as withholding tax expenses on dividend remittances.

Despite the poor headline performance, cash generated from operations increased to $15.3m (+3.2%) showcasing the group’s cash generative business model.

Maybank-KE maintains its Buy rating on the counter with a TP of $1.42 while expecting Super to catch up with stronger performance in the upcoming quarters particularly with new products rolling out across all of its markets by 1H16.

Positive catalysts to the stock could come in the form of an FY16 performance recover, M&A, and improving dividends.