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2010 Apr 30 - CIMB - Super Coffeemix

2010 Apr 30 - CIMB - Super Coffeemix

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08/16/2010

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April 30, 2010
 
See important disclosures at the end of this publication
 
1
 
OSK Research
 
DMG Research
SINGAPORE EQUITY
Investment Research
 
Initial Coverage
Private Circulation Only
CONSUMER
BUY InitiatePrice S$0.815
Tan Han Meng, CFA, CPA
+65 6232 3839han-meng.tan@dmgaps.com.sg
SUPER COFFEEMIXMANUFACTURING
TargetS$1.10
Terence Wong, CFA
 +65 6232 3896terence.wong@dmgaps.com.sg
 
Higher payouts or M&A as cash grows 
Stock Profile/Statistics
Bloomberg Ticker SUPER SPSTI 2959.01Issued Share Capital (m) 537.74Market Capitalisation (S$m) 442.1752 week H | L Price (S$) 0.85 0.43Average Volume (3m) ‘000 1089.48YTD Returns (%) 27.34Net gearing (x) CashAltman Z-Score 4.82ROCE/WACC 1.67Beta (x) 0.72Book Value/share (S¢) 0.52
Major Shareholders
Goi Seng Hui 16.80%Te Lay Hoon 12.57%Teo Kee Bock 12.11%Te Kok Chiew 10.00%
Share Performance
(%)
 
Month Absolute Relative1m 8.7 7.83m 26.4 20.06m 21.6 11.012m 79.1 17.0
0.500.550.600.650.700.750.800.850.902-Nov-092-Jan-102-Mar-10(S$)
 6-month Share Price Performance
Re-discover a Super brand; Initiate with BUY.
Established in 1987, SuperCoffeemix Manufacturing (Super) is Singapore’s leading instant beveragegroup that commands ~11% market share in its key S$1.4b market, consistingof Singapore, Malaysia, Thailand and Myanmar. Super owns >10 brands.including Super, Owl and Café Nova, and offers 300+ products across 52countries worldwide. Despite its resilience and high cash generativecharacteristics, current share price trades at early cycle valuation of 9x FY10EPE and offers a dividend yield of 4-5%. Initiate with BUY and TP of S$1.10,representing an upside potential of 35% over the next 12 months.
High cash generative characteristics.
Super has emerged stronger fromrecent economic turmoil. Revenue and recurring net profit grew at an averageof 8% and 22% per annum over 2007-09 respectively, on the back of strongcontribution from its new ingredient sales division and margin expansion. Freecash flow generated in FY08 and FY09 were S$12m-S$60m (vs. recurring netprofit of S$30m-S$38m) respectively. Following the divestment of its non-coreassets in 1Q10, Super is likely to have a current cash balance of aroundS$120m,representing 30% of its market capitalisation. We believe this willresult in higher payouts or M&A in the near future.
Potential upside catalysts.
Super will continue to benefit from the region’sGDP growth and the current low Robusta coffee prices, which suggest abovehistorical average margins in FY10E. The counter has attracted attention fromthe investment community since the announcement of its TDR dual-listingplan. We expect share price to respond positively to quarterly earningsmomentum, its dual-listing in Taiwan in 2H10 and potential M&A news flow.
Downside risks.
Key risks include unexpected sharp increases in raw materialprices, delay in listing plans and potential M&A overpayments.
 
 
FYE Dec (S$’m) 2008 2009 2010E 2011E 2012E
Revenue
300.2 296.3 335.3 384.0 425.9
Gross Profit
99.8 103.4 134.8 153.8 171.8
Net Profit
25.1 40.2 64.4 55.2 59.6
Net Profit - Recurring
30.3 38.3 50.8 55.2 59.6
P/E (x)
14.6 11.4 8.6 7.9 7.3
P/B (x)
1.7 1.5 1.3 1.2 1.1
EV/EBITDA (x)
9.4 7.8 5.0 4.3 3.5
Dividend Yield (%)
2.0% 3.2% 4.8% 4.2% 4.5%
ROE (%)
12% 14% 16% 15% 15%
Net Gearing (%)
-6% -23% -42% -41% -43%
Source: DMG estimates 
 
See important disclosures at the end of this publication
2
 
DMG Research
TABLE OF CONTENTS
About the Company 3Discussion 4Forecast 6Valuation and Downside Risks 7Financial Tables 9Disclaimer 10
 
 
See important disclosures at the end of this publication
 
3
 
OSK Research
 
DMG Research
ABOUT THE COMPANY
Background 
Super Coffeemix Manufacturing (Super) was founded in Singapore in 1987 by Mr TeoKee Bock, Mr Te Kok Chiew and Ms Te Lay Hoon. Its principal activities aremanufacturing and managing its own brands of instant beverages and food products.Super was listed on Sesdaq in July 1994 and upgraded to the Mainboard in February1998.Currently, Super is preparing for the listing of Taiwan Depository Receipts (TDRs)representing an aggregate of up to 30m new ordinary shares in the company on theTaiwan Stock Exchange (TSE). The new issuance may lead to an EPS dilution of notmore than 5.2%. As TDRs are non-fungible in nature, there will not be arbitrageopportunity between Super’s TDRs and ordinary shares. However, should the TDR listinggo through, Super will have another equity fund-raising channel going forward.
Figure 1: Board and Major Shareholders
Board Designation No. of Shares ('m) %
Teo Kee Bock Chairman/ MD 65 12.11%Goi Seng Hui Vice Chairman/ Non-exe director 90 16.80%Te Lay Hoon Exec director 68 12.57%Te Kok Chiew Exec director 54 10.00%
Other Major Shareholders
YHS Investment 65 12.10%CIM II Limited 39 7.30%
Total Number of Shares 538
Source: Company 2009 AR 
 Product 
Super has 300+ products ranging from instant coffee, cereals, canned drinks, instantnoodles to non-dairy creamers. These products are sold under its own brands includingSuper, Owl, Café Nova, Super Power and Coffee King. Revenue breakdown by its twokey divisions is Branded Consumer Goods – coffee (67%), cereal (9%), and others(13%); Ingredient Sales – non-dairy creamer (7%) and soluble coffee powder (3%).
Production facilities 
Super operates 13 manufacturing facilities in Singapore, Malaysia, China, Myanmar andThailand. Its facilities are ISO9001, ISO22000 and HACCP certified, and have acombined annual production capacity of 10,000 tonnes for soluble coffee and 50,000tonnes for creamers. Currently, it is the only company in the region with manufacturingcapabilities for instant soluble coffee, cereal flakes and non-dairy creamer. Averageinventory turnover is around 120 days.
Customer 
Super distributes its products directly or through 3
rd
party distributors to 52 countriesworldwide. Its key markets are Singapore (est. 12% of revenue), Malaysia (13%),Thailand (30%), Myanmar (16%) and China (12%), based on its receivables breakdown.Average trade receivables turnover is around 80 days.
Suppliers 
Raw materials include robusta coffee bean, sugar, and palm oil, which collectively makeup 75% of its cost of goods sold. Other cost components include packaging (15%) andoverhead (10%) costs. Average trade payables turnover is around 50 days.

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