Super Group - CIMB Research 2015-12-09: In an ASEAN downturn amid weak currencies

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SUPER GROUP LTD S10.SI 

Super Group - In an ASEAN downturn amid weak currencies 

• Super is struggling in both its branded consumer and food ingredient businesses, as weak end-consumption and currencies have hit earnings. 
• The regional macro outlook remains poor, and we remain wary about the success of new product launches in such a climate. 
• Premiumisation in its food ingredient business was supposed to boost sales in 2015, but this did not materialise. 
• Near-term earnings pressure is likely to come from weak sales and increased marketing spend. Maintain Reduce. 

■ Weak end-markets plus falling ASEAN currencies 

• Super Group’s struggles in 2014 has continued into 2015, and the current outlook for 2016 remains bleak. The twin problems remain: 
  1. a slowdown in consumption in ASEAN, and 
  2. weaker ASEAN currencies. 
  Both branded consumer and food ingredient segments are struggling. 
• Compounding the poor macro is the group’s expansion into the premium end of the ingredients business. That has so far failed to materialise into sales, while increased depreciation continues to be a drag on earnings. 

■ Consumer headwinds 

• The impending rate hike does not bode well for EM currencies and we are wary that a turnaround will not be forthcoming with US$ strength. 2015 was a year when earnings were further dampened from translation losses. 
• Its biggest market, Thailand, had to grapple with slowing domestic consumption. Malaysia and Philippines were down. 
• The bright spot was Myanmar which remained competitive even with its falling kyat, as Super benefited from volume growth as it cut prices to compensate for the kyat. 

■ Depending on new products in an increasingly ugly environment 

• Super has introduced two new products in its branded consumer segment, 
  1. Essenso, and 
  2. Owl Kopitiam Roast. 
• These were introduced in late-3Q15/early-4Q15 and are targeted at the mass premium category, as Super intends to ride on Asia’s rising middle income group. 
• We are, however, cautious on the take-up in the current climate. We think there will be more near-term pressures as SG&A rises with the group rolling out new products in 2016. 

■ Food ingredient (FI) dragged down by Southeast Asia 

• In 2014, FI sales fared better than its consumer business. However, 2015 proved to be a particularly challenging year for FI due to the weak Indonesian economy. 
• Super’s US$- denominated prices in Indonesia and a weakening rupiah did not help, with customers delaying purchases. The roll-out of premium FI products has also been slow. 

■ Reduce, challenging outlook ahead 

• We believe Super remains sandwiched between today’s weak ASEAN consumer incomes and rising inflation (caused by weak local currencies). 
• We maintain our Reduce rating, with a target price of S$0.74 (based on 15x CY17 P/E, peer average).

Kenneth NG CFA CIMB Securities | Jonathan SEOW CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report REDUCE Maintain REDUCE 0.74 Same 0.74