• Results drag by macro environment
• Management hopes for a better FY16
• FV cut to S$1.97

Exceptional charge of US$19.5m

Petra Foods reported a weak set of 3Q15 results. Revenue dropped 28.4% YoY to US$84.6m as sales continued to be dragged by weaker consumer sentiment in Indonesia as well as the depreciation of regional currencies against the USD. In constant currency terms, revenue would have declined by 16.5%. Operating profit was also about 81% lower at ~US$3.0m.

During the quarter, an exceptional charge of US$19.5m was recognized due to the settlement of the dispute with Barry Callebaut AG over the sale of its Cocoa Ingredients business to the latter in 2013. This resulted in a net loss of US$20.7m. Excluding the one-off item, a net loss of US$1.2m would have been recorded (3Q14: US$10.5m). A higher net tax expense also resulted from a withholding tax of US$2.3m incurred on dividends and royalty income received.

Subdued macro environment persists

On a broader level, OCBC Treasury Research noted that although we continued to see currency volatility and lower consumer confidence levels in Indonesia, private consumption was relatively stable for 3Q, growing 4.96% YoY. Sales however continue to decline and their trade customers remain under pressure and have reduced their orders as well.

In an effort to improve top-line, ASPs of the group’s products were raised by an average of 3- 4%. We understand from management that 4Q should reflect the positive impact from the price increase. Looking ahead, the group is “bullish” for FY16, and will continue to focus on improving their GPM to their comfortable level of at least 30%.

Estimates and FV reduced further

All things considered, we are keeping a cautious stance, as we do not see drivers for a significant pick up in volume. We have reduced our topline estimates by 10-12%, and with no significant changes to operating expenditures, we cut FY16F PATMI by 36% as well. We also adjust our USD/SGD assumption, according to our economist’s revised forecast of 1.457 for Dec-15. Rolling forward to 30x FY16F PE, our fair value estimate changes to S$1.97 (Previous: S$2.74). Maintain SELL.

Source: OCBC Research - 16 Nov 2015