Fair Value : S$2.80 | Recom : Outperform (Maintained)

Key regional player in instant beverage. Super is a leading instant beverage player in Southeast Asia with strong market position (top three in instant coffeemix market) in Myanmar, Thailand, Singapore and Malaysia. Super’s key strengths are: (i) the group pioneered the production of 3-in-1 beverages in Southeast Asia which enabled it to have a good headstart and entrenched itself in markets such as Myanmar, Thailand and Singapore; and (ii) it is one of the few companies with fullyintegrated capability to produce soluble coffee powder, cereal flake and non-dairy creamer.

Expecting stronger 2HFY12 results. Management guided for stronger earnings in 2HFY12 driven by seasonally stronger sales of both branded consumer products and beverage ingredients due to festivals, cooler weather and F&B companies increasing production in anticipation of higher consumer demand.

Benefiting from stabilising/weakening commodity prices. Super is expected to benefit from stabilising/weakening raw material prices. Robusta coffee bean prices (accounting for around 30% of its total COGS) have stabilised in recent months. In addition, palm oil selling price weakness will be favourable to Super as palm kernel oil is a key input in the production of non-dairy creamer.

Ongoing rebranding exercise. Super is continuing its rebranding exercise to refresh its brands and to compete more effectively with its key competitors such as Nestle (Nescafe). The group will be rolling out a major rebranding exercise in its strategic markets for its key ‘Super’ brand from early 2013 as well as streamlining its key revenue driver brands.

Forecasts. We raise our FY12 net profit forecast by 5.7% to S$69.4m to reflect improved margin and stronger 2HFY12 sales.

Risks. Key investment risks include: 1) sharp increase in raw material prices; 2) stiff competition from its current competitors and new entrants may erode its market share; and 3) lower-than-expected beverage consumption demand across the region.

Investment case. We maintain our Outperform call on the stock with a higher fair value of S$2.80 (previously S$2.50) which is based on a higher PER of 20x (previously 18x) FY13 EPS, benchmarked to its regional listed peer valuation. We like Super for its strong market position in Southeast Asia countries, execution track record and clear growth plans. We believe Super will be able to sustain its growth momentum with improved production capabilities and ongoing rebranding exercise.

Source: RHB Research - 25 Oct 2012