• Is the worst over?
• Management sees ‘positive indications’
• Lack of drivers for strong pick-up

FY15 was a painful year

Petra Foods’ 4Q15 revenue dropped 23.8% YoY to US$100m, while in constant currency terms, revenue would have declined by 11.5%, reflecting the weak consumer sentiment in its core market Indonesia and de-stocking by trade customers. Operating profit was also about 79% lower at US$4.1m, due to increased logistics costs and higher trade promotion expenses.

As a result, net profit plunged 93.5% to US$0.8m, culminating in a full year net loss of US$4.7m. Excluding the one-off charge of US$19.5m in 3Q15, a full year PATMI of US$15.3m was recorded (FY14: US$48.8m). Although FY15 gross profit margin (gpm) declined by 2.1 ppt, the group has managed to maintain its track record of GPM near 30%.

Management expects FY16 to be ‘better’

Management expects FY16 to be ‘better’ as they see a few ‘positive indications’ on the ground. Our economists expect USD-IDR to weaken by a rate of 3-4% this year, thus we may see a smaller currency impact on topline. But we do not see drivers for a significant pick up in volume. Less de-stocking by trade partners and a positive turn in the macro sentiment would be key factors to look out for.

On higher expenses in FY15, this was due to making certain agreements that were locked in based on management’s initial optimism for positive sales growth, which did not fall through during the year. While expenses may be toned down, we think it will be reduced only by a small extent given the longer term strategy in expanding shelf space and distribution capabilities.

Proposing capital reduction amid weak results

We slightly adjust our USD-SGD assumption, according to our economists’ forecast of 1.465 for Dec-16. Based on 30x FY16F P/E, our fair value estimate changes slightly to S$1.92 (Previous: S$1.97). Maintain SELL.

Following the settlement with Barry Callebaut, the group has concluded that US$111.7m cash reserves are in excess of immediate needs of the company, thus they have proposed to return US$60m or about 9.82 US-cents/share to shareholders through a court-sanctioned capital reduction. This is subject to shareholders’ approval and may take 22 weeks to complete. Last year, a final DPS of 1.92 US-cents was declared.

Source: OCBC Research - 24 Feb 2016