Time to take a fresh perspective on cash flow. 1Q13 results were within expectations, with recurring net profit of SGD22.3m against our preview expectation of SGD22.5m. With resilient earnings from a broadening F&B business and free cash flow which will grow exponentially from next year, we think it is now appropriate to value the stock on a discounted cash flow basis, which is supportive of 30% share price upside from here. Reiterate BUY.

IQ13 results within expectations. Recurring net profit grew 30% yoy from SGD17.2m, driven by higher revenue and better margins. Gross margins grew to 37%, getting tailwind from declining commodity prices. While we expect margins to moderate over the next few quarters due to seasonal sales mix, we still expect strength due to 1) higher value products coming on stream and 2) economies of scale.

Revenue growth mainly from ingredients. Group revenue grew 9% yoy, contributed mainly by the ingredients segment (up 33% yoy), which continues to win new customers and achieve higher utilisation. Encouragingly, Super signed on several key customers in Indonesia, a new market for ingredients. Branded consumer segment was flat yoy, partly due to the high base effect of 1Q12, which saw restocking after the Thai floods. Myanmar, a key market for Super also saw a 10% yoy decline due to racial riots, but we expect distributors to restock in 2Q13.

Dramatic change in free-cash-flow profile from FY14. With the completion of its Tuas headquarters and Botanical Herbal Extract line this year, there are no other announced plans in the pipeline. While management is looking at possible investments in Myanmar and other new products, we think the quantum is unlikely to make a big dent in its debt-free position of SGD94m and free-cash-flow which will improve dramatically from SGD51m to SGD100next year.

Justifies a DCF valuation matrix, Reiterate BUY. We continue to believe Super is an attractive takeover target. Furthermore, its growing and resilient earnings are now bearing fruits into free-cash-flow. We think these factors justify a DCF valuation methodology (3-stage). We keep our estimates unchanged, but this fresh perspective yields a TP of SGD6.30, implying 30% upside from current levels.

Source: Maybank Kim Eng Research - 14 May 2013