BUY S$1.45 STI : 2,778.97
Price Target : 12-Month S$ 1.65
• Relocation of Changzhou plant will net S$10.2m gain over next three years
• No production disruption expected as production less significant than Wuxi plant
• Any possible special dividends will be determined at a later stage
• Thailand plant is currently unaffected by floods
• Maintain recommendation and TP for now
Super will be relocating its packaging plant in Changzhou, China by 31 March 2013 as required by Changzhou's Qishuyan District Government. As compensation, Changzhou's Qishuyan district government will give Super a 120mu land parcel in Qishuyan Economic Development zone and approximately S$12.4m (S$10.2m after relocation costs and expenses) cash.
Super will receive the new land from the government in the following phases outlined below. Based on land transfer completion schedule, we estimate Super to book non-core profits of S$4.24m/S$2.54m/S$3.39m for FY11F/FY12F/FY13F.
No production disruption expected and any special dividends will be decided at a later stage
Super has two key manufacturing locations in China, namely Wuxi and Changzhou. We understand that production in Changzhou is relatively less significant than Wuxi and that any production disruption will be offset by additional capacity from capex expansion in Wuxi. Gains from the relocation may be distributed as special dividends. However, in our view, special dividends, if any, will be determined at a later stage.
Thailand plant is likely unaffected for now based on our geographical analysis
Super has one plant in Plangyao, Chacheongsao, Thailand located some 20km east of Bangprakong River but on slightly higher ground. Based on our geographical analysis of the latest flood situation, the plant location is not affected. Our Thailand research team believes that water will ultimately drain into Brangprakong River as the government takes steps to defend Bangkok by channeling flood waters eastwards from the Chao Phraya River into the Bangprakong River. We estimate that Thailand accounts for 20% of Super’s overall sales. Assuming no contribution from Thailand in 4QFY11 and 1QFY12, Super core earnings will be lowered by 4-5%/4% for FY11/FY12F.
However, we continue to keep our EPS estimates unchanged, noting that reduction in earnings from Thailand will be mitigated by expected non-core gains from relocation of Changzhou plant.
As Super is due to announce its 3Q11 results on 11 November, we retain our EPS estimate, recommendation and TP for now.
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