• Weaker IDR understated performance
• Targeted product launches to drive growth
• Overseas penetration through brands acquisition

Weakened IDR understated FY13 performance

Petra Foods’ continuing operations’ fundamental growth in FY13 is stronger than reported considering IDR depreciated against the USD by an average of 10%, and 72.7% of sales came from Indonesia. Stripping the IDR depreciation, we estimate that FY13 PATMI would have increased 17% to US$63.6m (versus 9.1% to US$59.3m reported). We think this is a testament to Petra Foods’ ability to execute its strategies of brand-building, new product launches, as well as strengthening of sales and distribution capabilities.

Expect differentiated new products to deliver

We note from management meeting that product launches are to fill up its countryspecific portfolios with commercially viable foodstuffs in order to cater to different client segments. Petra Foods also builds upon locally recognised brands where possible, whereby the same food can come under different brands. With such a consumeroriented strategy and strong branding in Indonesia and Philippines, we think Petra Foods would continue to deliver growth.

Time to acquire overseas brands like it did in Philippines

Petra Foods has received estimated net proceeds of US$164m from the sale of its Cocoa Ingredients division in FY13. Though there is an arbitration to reduce the closing price by US$98m, the proceeds would still be a sizable war chest. We think Petra Foods is likely to acquire brands to penetrate further into regional markets rather than growing its existing brands organically. Back in 2006, Petra Foods acquired the chocolate confectionery manufacturing plant and sales and distribution assets from Nestle Philippines’ Inc and its subsidiary. The key prizes are, in our opinion, the popular local brands “Knick Knacks” and “Goya” that jumpstarted Petra Foods’ penetration into the Philippines market.

Maintain BUY

We raise our FY14 growth forecast to account for the rebound from subdued FY13 results as IDR depreciation shows sign of abating and we also believe in Petra Foods’ strategy. We maintain BUY with new fair value estimate of S$4.08 (previous: S$3.95), noting that overseas brands acquisition would be a re-rating catalyst.

Source: OCBC Research - 10 Mar 2014