Event:
Super has made several moves in the past few months that we believe will further shore up its margins, enhance its topline growth potential and reaffirm its investor-friendly, back-to-basics strategy. We increase our FY11-12 forecasts by 13% and 6%, respectively, following a second round of price hikes in June and taking into account a small loss on disposal of its 8.9% stake in PSC Corporation.
Our View:
In June, Super raised prices by 3-5% for a second time this year, following the first 3-5% revision in February. We expect a positive impact on margins in 3Q11, similar to 1Q11 which benefited from two months of higher prices. According to management, sales volume following the first hike has not been affected, and based on our observations, Super’s price for its key 3-in-1 coffeemix still remains 10-15% below key competitor Nestle.
The recent plasticiser (DEHP) food contamination scandal in Taiwan is raising quality awareness further among food product
manufacturers, not just in Taiwan but also regionally. Due partly to this and Super’s own sales efforts to customers outside China and Taiwan (eg, Indonesia), its non-dairy creamer line in Wuxi has been fully utilised in the past few months. Plans to add 25,000 metric tons to the current 50,000mt capacity by September this year are on track.
Super recently sold its 8.9% stake in provisions supplier PSC Corporation for $24m. Although it will recognise a loss of $0.8m in 2Q11 from this, we believe this move is a sign of its back-to-basics focus. With PSC out of the picture, Super has only one non-core investment left – a 33% stake in a property project in Changzhou, Jiangsu Province. However, that project, carrying an investment value of $7.6m, is self-financing and Super is actively looking for a buyer.
Action & Recommendation:
We maintain our BUY call with a target price of $1.78 (17x FY11F), raised from $1.72 previously. Our price target is the highest on the Street.
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