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 raise our FY11‐12 forecasts by 13% and 6%, respectively, following a second round of price increases this month and taking into account a small loss on sale of its 8.9% stake in PSC Corporation.
Our View:
Starting this month, Super raised prices by 3‐5% for the second time this year after the 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 main competitor Nestle.
The recent plasticiser (DEHP) food contamination scandal in Taiwan has further heightened quality awareness among food product manufacturers, not just in Taiwan but also regionally. Due partly to this and to 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 this September are on track.
Super recently disposed of 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 the sale is a sign of its back‐to‐basics focus. With PSC out of the picture, the group has only one non‐core investment left, ie, a 33% stake in a property project in Changzhou, Jiangsu Province. But 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 target price is the highest on the Street.
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