11 August 2014

Super Group Quarterly Report Summary - August 2014

Performance Review

Half year revenue drop marginally 5% to S$256 million, with net profits contributed to owners of the Company dropped 44% to S$34 million from S$60 million a year ago, mainly due to drop in sales and gross profit margin and increase in general and administration expenses.

PPE increased 4% mainly due to construction and equipment costs incurred for the Singapore Tuas factory extension, the new China Changzhou plant, the Botanical Herbal Extraction facility and the new soluble spray-dry coffee powder facility.

The inventory increased 11% mainly due to higher raw material balances held by certain subsidiaries at the end of the current period.

Net cash flow from operating improved to S$23 million from S$11 million a year ago mainly due to decrease in receivables offset by decrease in net profits. Net cash flow in investing increased to S$25 million from S$14 million last year mainly due to increase in PPE. Net cash flow in financing reduced to S$22 million mainly due to the bank loan of S$20 million (for expansion projects of the group) offset by higher dividend payment of S$39 million.

Half year EPS is 2.95 cents compared to 5.26 cents last year, with NAV stood at 40.71 cents. The expected annualized ROE is around 14% - 16%. Estimated PE is around 23 - 24x.

Company Comment

The Group’s growth for the last 5 years was powered by its dual engines; namely branded consumer business and food ingredients business. Today, the Super Group has emerged stronger with a sound integrated business model, and more diversified product and market portfolios. Going forward, the Group will adopt a 3-pronged strategy of branding, product innovation and talent management to build on these fundamentals.

Branding and product innovation - Following the Group’s rebranding exercise in the year 2013, management has streamlined the brand portfolio with the creation of individual sub-brands to carry the various product lines. For instance, the sub-brand “Super Coffee” was created to carry the Group’s instant regular coffees, “Nutremill” for the Group’s healthy beverages including instant cereals and soya milks, “Super Power” for vitality beverages, “Owl” for traditional instant coffees. Each sub-brand has its own branding team in-charge of its brand development. This new brand architecture enables the Group to highlight the unique values offered by each sub-brand, and thus enhance the appeal of the brand to the consumers.

Management has also lined up a series of marketing campaigns for the Group’s core markets, including Thailand and Malaysia, for the second half of the current year. New product launches will also be undertaken in conjunction with the marketing campaigns. Management believes that continued product innovations will help the Group to secure the first-mover advantage in its markets and drive sales growth.

On the food ingredients front, the Group seeks to roll-out more premium products and value-add its existing products. The botanical herbal extract production line will be completed in the second half of current year. Botanical herbal extraction, which involves transforming herbal items such as tea, chicory, ginger, chrysanthemum, etc. into liquid concentrate or soluble powder form, has a niche market in Asia and will compliment the Group’s existing product range. The Group has also upgraded one of its production lines in its China Wuxi plant which qualify for Good Manufacturing Practices (“GMP”) certification. With the production line, the Group is able to produce nutritional oil powders used in the manufacture of infant milk formula. The production line can also be used to produce pharmaceutical grade products. The Group will also look at enhancing its non-dairy creamer product range with nutritional values to appeal to the health conscious customers.

Talent Management – Continued focus will be put on recruiting and retaining employees with the right skill sets to execute the Group’s strategies. Management is in the process of reviewing its Human Resource policies to attract and retained talented employees. New talents have also been recruited to beef up both the branded consumer and food ingredients businesses.

Management believes that these initiatives will help the Group to drive the next phase of growth. Raw material costs and currency fluctuations will affect the Group’s operating performance. Management is familiar with these challenges and will take appropriate actions to mitigate their impact on the Group’s businesses.

My Notes

It is another disappointing quarterly result for the company. While the company is preparing well for the new market - botanical herbal extract, I think the company is still facing intense competition in branded consumer market. With estimated PE of around 23X, I would not say the share price is cheap. Let's wait for few more quarters to see whether the capex spent so far could help to boost up the revenue as well as the net profit margin as well.

You may also like to refer to the presentation slide by the company here.

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