Yeo Hiap Seng (YHS) posted a weaker set of 3Q16 results, after its share price rallied earlier this month following the buyout offer for Super Group, which it holds a 11.7% stake.
Net profit for the quarter plunged 45.7% to $5.1m, bringing 9M16 earnings to $18.6m (-17.5%).
Quarterly revenue declined 13.5% to $94.7m, predominantly due to deterioration in F&B sales to $93.4m (-13.7%).
Gross margin narrowed 2.5ppt to 37.5% on higher raw materials costs. Bottom line was further hit by a $4.4m drop in FX gains.
Management highlighted that business outlook remains challenging, as F&B margins may come under more pressure due to the tepid global economy, intensifying competition and uncertainty in raw material prices.
Furthermore, the group ended an exclusive bottling agreement with PepsiCo. to bottle and distribute the latter's soft drinks in the Singapore market. The cessation of the deal is expected to weigh on FY17 earnings.
Notwithstanding, YHS has provided an irrevocable undertaking to the buyout offer of Super Group for its 11.7% stake. If the takeover is successful, the group will receive $169.3m in cash proceeds and reap a book gain of $61.9m or $0.107/share. This would strengthen the group's balance sheet, and allow more flexibility for business development elsewhere.
YHS is now trading around 24x trailing P/E, which well below the 31.7x valuation offered for Super Group.
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