These are the key takeaways from Petra Foods’ 1Q15 results briefing.

Disappointing results – 1Q15 revenue and net profit fell 13.5% and 42.8% y-y. Soft consumer sentiment in Indonesia and the weakening of IDR against USD were the main culprits. The last time Petra saw a decline in sales of this magnitude was back in the Asian Financial Crisis (1997/98). Back then, it took about a year to see an uptick in sales. While Management acknowledged the disappointing results, it shared it was cautiously optimistic for the rest of FY15, noting that Apr-15’s numbers were encouraging.

Philippines did well – Regional market revenue was down 5.5% y-y, but up 11.3% y-y if discontinued Agency brands were excluded. Philippines recorded the strongest sales growth.

Strong USD cause drag on gross margin – 1Q15 gross margin was 30.3%; 160 basis points lower y-y. About 70% of Petra’s raw materials are bought in USD. The weakening of IDR against USD has led to higher raw material prices. Petra hedges its raw material prices using forward contracts, but does not hedge its FX exposure.

Three ways to counter FX pressures – Management shared three methods to mitigate FX pressures on the top line: 1) Increase product prices, 2) Reduce the product sizes and, 3) Roll out new products. The sweet spot for new products are priced between IDR1,000 and IDR10,000. Management did not introduce new products in 1Q15, but intends to do so in FY15.

Investment Actions

No stock rating or price target provided, as we do not have coverage on Petra

Source: Phillip Securities Research - 8 May 2015