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Analysts: Super Group To Bounce Back In FY15
Aspire, Hot Picks | 04 March 2015
By: Raymond Leung
Articles (142) Profile

Analysts' updates on S10.SI as at 04/03/2015

After a weak 1H14, Super Group Ltd. (Super) made a comeback through stronger 2H14 results that were released last week. Analysts welcomed the results that were above their expectations as Super’s sales recovered.

FY14 Took A Hit

However, revenue for FY14 still decreased by a slight three percent from $557 million to $539.4 million, affecting Super’s gross profit as it fell nine percent to $189.6 million.

Furthermore, operating expenses inched up by three percent despite the lower sales. The biggest hit was the net other income that dropped by 53 percent from $21.6 million to $10.1 million.

Overall, net profit for the group fell by 31 percent from $99.9 million to $68.8 million.

What Caused The Drop?

Sales of Super’s branded consumer goods and food ingredients fell by four percent and two percent respectively. Inflation and gross margin compression were the main reasons for the declining sales.

The most significant problem was the higher cost pressures of palm kernel oil. Super organised marketing campaigns in Malaysia and Thailand in attempts to boost sales, but this also increased selling and distribution expenses.

Higher general and administrative expenses from the deferred gain amortization of $3.1 million per year ended in FY13 contributed to added costs as well. Furthermore, the completion of expansion projects meant that Super’s financials were subjected to higher depreciation costs.

Net other income dipped due to the absence of a 35.3 percent stake disposal of an associate company, Sun Resources Holdings in May 2013. However, the missing one-off gain of $17.1 million was partially offset by the sale of the group’s property in Chin Bee Crescent which contributed $10.2 million.

Large Cash Balance Makes Super Strong

Despite the setbacks, Super has a strong balance sheet and business model to back its company. The group generates a net cash amount of $62 million in FY14 from its operations. The group grew its cash and cash equivalents to $101.3 million.

It has a net cash position of $81.3 million and low debt to equity ratio of 0.22. The company’s dividend payout ratio remains consistent as Super has paid at least 50 percent of the group’s net profit for the last five years.

Super has an integrated business model which ranges from ingredients manufacturing to sales and marketing. The seasoned management has been actively driving brand building, product innovation and diversification strategy. This has helped to stimulate growth for the group as a whole.

Source: Super Group FY14 Presentation, Fundamentals

Outlook FY14

Source: Super Group FY14 Presentation, Outlook

Analysts’ Thoughts

Although Super’s 1H14 sales was weak, analysts think that the latest results in FY15 shows potential for significant improvement. Super moved its packaging department from Singapore to Malaysia in FY14 to reduce costs. Furthermore, this initiative would allow Super to target new markets beyond Asia and also the upper class consumers.

Super group has also been committed to payout at least 50 percent of its net profit and has declared a final dividend of $0.021 for 2H14. Analysts from Maybank Kim Eng Research hold high expectations towards the counter as they upgraded Super from “Hold” to “Buy” with a target price of $1.60.

They cited lower market expectations, better growth potential, balance-sheet health and a seasoned management are all reasons to buy the stock now.

Disclaimer: Please take note that the writer of this article is vested with interest in the above mentioned counter.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

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