Super Group toasting and roasting

Above expectations. FY12 results were above expectations as Super posted strong earnings growth to match its growing reputation. Stripping out exceptional items, recurring net profit came in at SGD77.7m, up 43% yoy. Management announced a final dividend of SGD5.1cent/ share, bringing full-year dividend to SGD7.1cent, as per its dividend payout guidance of 50% which they intend to keep.

Toasting a good year. FY12 profit growth was driven by revenue growth of 18% yoy, with consumer segment achieving 12% growth and ingredients sale growing 23%. During this year, the Group made progress into new markets like Philippines, which doubled in sales and maintained market share in key growth ASEAN markets. Its pedigree as a ingredient supplier also grew, with high customer take-up for its Non-Dairy Creamer (NDC), which increased capacity to 125,000 mtpa.

Strong 4th quarter, healthy trends. 4th quarter was strong, with 16% yoy growth in consumer segment partly due to recovery in Thailand which was affected by floods. Ingredients sale was a major contributor, enjoying the full benefit of the higher NDC capacity during a seasonally high quarter. Gross margins improved to

SuperGroup bearish break - time to take profit

Key supports breached. Super Group is likely to see further correction after violating its 4-month uptrend support recently; this was followed by a strong bearish break below its 50-DMA and $3 key support on heavy volume in the last session.

Indicator is bearish. The MACD has just fallen below the centerline, suggesting that the downside momentum could continue.

Next key support at $2.45. The counter could possibly slip further towards the next key base at $2.45 (resistance-turned-support) in the weeks ahead.

Immediate resistance at $3. Meanwhile, $3 is

Expect Super Group improved sales with stronger ingredient sales in China

Fair Value : S$2.80


+ Expecting stronger 3QFY12 numbers. Super will be releasing its 3QFY12 results on 8 Nov 2012. We expect Super to report higher YoY 3QFY12 earnings (+38-40% YoY) driven by: (i) improved sales with stronger ingredient sales in China; and (ii) higher YoY gross margin with stabilising/weaker raw material costs. We expect Super’s 9MFY12 net profit to make up 73-74% of our FY12 annual forecast as its fourth quarter tends to be its strongest quarter historically.

+ Higher YoY sales expected in 3QFY12. We project Super to report higher YoY sales on the back of stronger ingredient sales, in particular nondairy creamer sales in China (increased production capacity from its nondairy creamer plant in Wuxi from Sep 2011), and organic growth in branded consumer products. Ingredient sales are seasonally higher in third and fourth quarters as F&B producers increase their production to meet higher consumer demand over year-end and Chinese New Year.

+ 3QFY12 gross margin to be intact with stabilising/weakening commodity prices. We expect Super’s gross margin in 3QFY12 to be around 35% (slightly lower than 35.6% in 2QFY12 due to higher ingredient sales, but higher than 29.3% in 3QFY11) with stabilising/weakening raw material prices. Robusta coffee bean prices (accounting for around 30% of its total COGS) have stabilised around

Spike in Robusta coffee bean for Super Group

Since our upgrade to BUY in Feb12, Super’s share price had returned +42% to close at all-time highs of S$2.21 recently. This translates to a blended FY12-13F 17x PER that is +1.6SD to its historical mean 12x, suggesting limited room for near-term upside. We see some headwinds from higher Robusta coffee bean prices that averaged ~US$2,125/tonne in May12, which lifted the year’s average to ~US$2,000/tonne. We factor in potentially higher raw material costs for 3Q12 production and revised down our FY12-13 estimates by 4%-3% respectively. We continue to like Super for its dominant position in SE Asia instant coffee market, brand-building efforts and strong cash flow generative characteristics but reason its risk-reward trade off is fair at current levels. We are now NEUTRAL at a lower TP of S$2.12 (previously S$2.18), pegged to 15x blended FY13-14F PER.

Spike in Robusta bean prices in May12. Coffee bean prices peaked above US$2,200/tonne in May12 and have since softened. We estimate 3Q12 input costs to be ~US$2,100/tonne, higher than ~US$1,900/tonne for 1Q12. Sugar prices were softer at