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Super Coffeemix Manufacturing
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Pinnacle
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15-Nov-2007 17:50
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Phillip Securities Research - Respectable results Results review. Super Coffeemix Manufacturing Limited (?Super? or ?the Group?) recorded a 16.9% YoY increase in revenue to S$180.3 million for the nine months ended 30 September 2007. Gross profit in 9MFY07 was up 15.9% YoY to reach S$64.2 million, with gross margin at 35.6% compared to 35.9% in 9MFY06. Super?s net profit registered a 30.0% YoY growth to reach S$22.8 million for 9MFY07. In terms of earnings per share, the increase in the bottomline translates to a YoY increase of 18.6% to 4.08 Singapore cents. On a quarterly basis, revenue was up by 8.4% YoY to reach S$ 59.6 million for 3QFY07. Gross profit was at S$21.4 million, up by 8.7% YoY; gross margin for the quarter was at 35.9%. However, net profit for the quarter was down by 18.9% YoY to reach S$5.2 million. Quarterly net profit was down mainly due to: (i) net loss (~S$0.9 million) incurred as a result of fair value adjustments on quoted equity investments and (ii) a 27.2% YoY increase in selling and distribution expenses due to advertising and promotion activities. Higher raw material costs offset by higher pricings and effective costs control. Despite the generally higher raw material costs, the Group?s gross margin was maintained at a reasonable level: 35.6% for 9MFY07 compared to 35.9% for 9MFY06 (35.9% for 3QFY07 compared to 35.7% for 3QFY06). This clearly shows that Super is able to effectively control its costs while at the same time, pass down some of the rising costs to the consumers through increments in products pricings. Outlook. While the third quarter results may appear weaker (registering single digit growth), we remain optimistic. Demand for Super?s products is expected to remain at a reasonably strong level, especially with efforts made in increasing the awareness of them (the products) through advertising and promotion activities in various markets. Finally, we also expect the Group?s growth initiatives announced last year (i.e. the vinegar business in China and the joint venture with China Lifestyle to manufacture and distribute snack foods in China) to start contributing to the bottomline by the end of FY07 and/or the beginning of FY08. Maintain BUY recommendation with fair value of S$1.01. We adjust slightly downwards both our sales estimates and gross margin assumptions due to a generally higher raw material costs and a weaker third quarter. Our fair value is arrived at based on a 16x1 blended FY07/08 EPS. The fair value of S$1.01 translates to a FY08 P/E of 15.6x and P/B of 2.0x. We maintain our BUY recommendation based on valuation. Risks. Downside risks to our valuation include rising raw material costs, ineffective costs control, and softer consumer demand. |
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