• FY14 core PATMI down 15.2%
• May raise prices if IDR remains weak
• Maintain HOLD

Weaker FY14 results were expected

Petra Foods reported a weaker set of results for FY14, which was expected by the street as the group’s topline was hindered by the weakening IDR against its USD reporting currency over the year. FY14 revenue was down 0.9% to US$504.0m and PATMI declined 17.8% to US$48.8m. Excluding the exceptional cost of US$1.5m from the on-going dispute with Barry Callebaut, its core PATMI fell 15.2% to an estimated US$50.3m, which was slightly lower than our forecast. In constant currency terms, FY14 revenue rose 10.7% while PATMI saw a marginal 0.6% increase. We note that Own Brand growth in the Philippines was more than 30%, but it will take the next few years for its business to achieve the desired scale that will enable contribution to its bottom-line.

Increasing distribution points to drive growth

The group managed to maintain margins at about 32% over the year despite higher cost inflation resulting mainly from weakness in regional currencies. This is underpinned by having a right mix of timely pricing adjustments (especially for its premium chocolate products), product rightsizing and buying forward its raw materials. Looking ahead, management remains positive on their business growth in local currency terms. Driving growth this year will be the group’s plans to increase their sales and distribution points as well as introducing new products and categories to expand its portfolio. While IDR depreciation against USD is expected to extend into the rest of FY15, in response, management may look to raise prices.

Keeping cash due to ongoing dispute

With a cash pile of US$172.0m, the group is looking out for opportunities, but with its ongoing dispute with Barry Callebaut over sale proceeds of the Cocoa Ingredients business, it is also sensible to keep the cash for now. A final dividend of 2.58 S-cents/share and a special dividend of 2.19 S-cents/share were declared, bringing total DPS to 7.5 S-cents. Our FV estimate dips to S$3.78 from S$3.86 as we trimmed our revenue growth expectations. Maintain HOLD.

Source: OCBC Research - 27 Feb 2015