Event
Super’s 2Q11 profits fell by 37% YoY but only because 2Q10 results included a $10m gain on the sale of a property joint venture whereas there was a $0.7m loss in 2Q11 from the sale of an associate company. Core profits actually rose by 44% to $12.6m with healthy underlying trends in sales of branded consumer products and ingredients. While margins were soft in 1H11, Super is headed into the seasonally stronger 2H with two rounds of price hikes (February and June), an upcoming 67% increase in ingredient production capacity and raw material costs that are starting to come off. Maintain BUY and target price of $1.78.
Our View
Super recorded healthy sales trends in 2Q11 as key markets Thailand, Singapore and Malaysia drove the third consecutive quarter of accelerating growth (+22% YoY) for branded consumer products (78% 3‐in‐1 coffee). In turn, ingredient sales jumped 285% YoY on healthy utilisation of its 75,000mt capacity, driven by new market Indonesia.
Margins fell from 39.3% in 1H10 to 33.5% in 1H11 as the prices of raw materials (robusta coffee, palm oil and sugar) surged YoY. However, with two rounds of price increases in February and June 2011 already implemented, along with sliding prices of coffee and palm oil since they peaked in June, we expect margins to be stronger in 2H11.
Responding to strong demand by existing China customers as well as new customers in Southeast Asia (eg, Indonesia), Super intends to increase its non‐dairy creamer capacity by 50,000mt in 3Q11, double its original plan of 25,000mt. In addition, the second half of the year is traditionally stronger, hence there is room for earnings upside.
Action & Recommendation
We stand by our BUY recommendation on Super. The share price has been made more attractive by the recent market weakness. Our forecasts and target price of $1.78 are unchanged.
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