28-06-2014, 11:57 AM
(27-06-2014, 11:19 PM)smalkmus Wrote: [ -> ](27-06-2014, 08:45 PM)Muser Wrote: [ -> ](27-06-2014, 06:24 PM)CY09 Wrote: [ -> ](27-06-2014, 05:59 PM)Muser Wrote: [ -> ]What can go wrong with this business?
- consumption driven branded FMCG biz, and supported by fast growing food ingredients biz and new products in the pipeline.
- Sustained ROE, sales & profit growth over past 5 years
- Investing in building brands to differentiate, and improve pricing power
I estimate its IV is much higher than its CMP of $1.42
Why can't this be the Nestle of ASEAN?
Hi Muser,
No doubt it can be the NESTLE of asean.
However, one must consider the following:
1) Super will be earning approx 6.5 cent EPS this FY
2) The latest FY will no include any one time earning, no more amortization gain of sale and lease buyback of property, sale of subsidiary, food ingredient tremendous sales has stopped and is now growing at stable level. Therefore, it is likely to be a good reference of Super's group underlying business performance
3) Asean is a growing economy, however at 22x PE, is the future growth already priced in to the current market price
- My estimate of Super's earnings power value based only on operating profits (not considering any other one time income) is much more than CMP.
- For a growing franchise like Super, future returns may come from earnings growth, not expansion of PE multiple.
- So a current high PE may not matter. We have to pay up for quality...many value investors have profited by doing this.
My concerns are 1. How well can Super grow its brands, differentiate itself and gain pricing power. 2. How well can Super compete with Nestle & other big brands.
Hi Muser
I see your belief in the quality of Super, but I feel there has been too much hype and the business has been over priced.
I work in the consumer product goods industry myself, and I would like to share what I personally feel is the challenge with Super and why it can't be the Nestle of ASEAN (within the next 5-7 years).
Firstly, the product that Super is involved with is highly commoditized. The FMCG market is seeing a trend of premium brand (gourmet coffee) and low end coffee (real dirt cheap) gaining share at the expense of the mainstream (mid tier brands - Nescafe and to a certain extent, Super). This explains the reason for Nestle to introduce Nespresso (and betting big on it) as well as trying to churn out more innovative and expensive products at Nescafe. The way for a company to solve this dilemma is to go localized (emphasizing on the unique and local quality of the product to target the domestic market. Super in my observation, doesn't have the premium image, and ability to stretch their brand. It takes years and consistency to widen the moat. A brand such as Coca Cola only has 50-60% brand loyalty, Super is competing in a low loyalty category where variety is key to consumer. At the same time, a lesser brand name doesn't allow them to earn higher margin to reinvest. At this current price, it's a bit too much for my stomach.
Another issue with Super right now is the product range has not been extensive enough, which is critical. That's why Nestle, Pepsi, Kraft, Mondelez like to do cross category expansion. This helps in expanding the power of negotiation. Key accounts such as DFI and the likes of it, are slowly taking the profits of the smaller FMCG companies, that why the mergers of food companies happen in USA pretty much nowadays.
I know a lot of buddies will point to their regional efforts over the past years which I am actually impressed by what Super has done. Do note that, a few pointers from some of my customers (whom are coffee producers themselves) are as such. The Myanmar environment has changed a fair bit, the local players have started a lot more savvy marketing effort and have entered into Super's territory. At the same time, Nestle is entering the market in a conservative manner. This does not bode well. My customer in Vietnam has also commented that the Vietnamese are very loyal to their Vietnam coffee, which Super does not command. Other buddies are free to enlighten me on the other regional efforts of Super.
However, I feel that all is not lost for Super. If they can expand and make their product a premium category in the developing markets, they can reap the benefits for years to come. The challenge is to get their strategy and consistency right.
A lot of investor will always say this about FMCG companies,'people will still need to eat, drink, smoke, etc etc or consumer". My reply will always be, yes they will always do that, the problem is it your product and what is your share of market in this context. People will always need to eat biscuits, but the challenge will be, are they eating Khong Guan or eating Oreos.
On a side note, as with the idea they can be Nestle of ASEAN, I personally feel a better bet will be FNN. Super needs to diversify successfully in order to be at that level.
Just my 2 cents worth. Apologies if there are any analytical mistakes.
Great post. From your point of view, what is the diff between Super now and say 3 years ago? (Besides price)