Super Group

[specuvestor]

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)

[corydorus]

I have been reading a little on Super. Heard they tried to do Premium in Europe Market before but no success.
Also instead of 3-in-1 to do just beans etc have been limited.

Please do your own research.

(Not Vested)

[Muser]

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.

Good points. Super's products do seem to be in the low-loyalty category. Not sure how higher spends on branding will improve loyalty, market share & pricing power.

However, most successful FMCG companies like Nestle & Coca Cola have had humble beginnings. Does Super have the ingredients to be a greater FMCG success story over next 5-7 years?

[promptpost]

Super needs get into partnership with other regional coffee giants to grow faster rather than taking the expensive capex route.

[smalkmus]

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.

Good points. Super's products do seem to be in the low-loyalty category. Not sure how higher spends on branding will improve loyalty, market share & pricing power.

However, most successful FMCG companies like Nestle & Coca Cola have had humble beginnings. Does Super have the ingredients to be a greater FMCG success story over next 5-7 years?

I haven't really go into the numbers to make a really informed choice. Will do it once their price drops, still too high for me just by looking at PE ratio alone. I need some margin of safety at this stage. However, for me, the dipstick test in whether is a fmcg company worth looking at to invest or investigate involve a few criteria.

1st, Product Loyalty. does the company has a product something that people don't mind paying for extra (nespresso capsule/SK2) or need to buy on a regular basis subconsciously (Mentos/100 Plus/Coke). The stability of the cash flow from such a regular purchase makes a lot of difference when it comes to helping the company makes better execution of their strategy. Strategy on a side note, is over rated. It is easy to talk about, execution is the problem. The analogy will be like a good goalkeeper at your back, and your midfielders can go all their way to score. Think Coca Cola with their Coke during 1960s -1990s. The money from Coke, give them new products such as Vitamin water, Minute Maid, etc.

2nd, Pricing power. Does the company does regular price increase at certain interval? 2 years once or 3 years once is good enough. Reason for this is simple, cost has to increase, do they have the will and belief to increase their price. Also, if you are a consumer, ask yourself this question. If you find that you just shrugged the price increase off, and still pay for it (such as coca cola), you can consider looking at it. I have an experience with 100 Plus, in which they increase the price of their but people are still drinking it, even for me. To me, that's a certain power most brands don't have. In other words, look for "lanlan" product, which people still has to suck it up.

3rd, People: which is more of an insider check. what is the quality of the personnel. Do the people in the company stays long and loyal (at least for 5 years average). Does the boss always go around thumping their chest, bad signal btw, cause fmcg is a simple business. Focusing on internal is better for the business than the external. If the CEO just speaks at investor conference or when the company needs to answer some matters, fair enough (look at Alan Lafley of Procter and Gamble, good indication of when to speak). For the CEOs who likes to speak too much, I leave it to the rest to make the observation.

4th, Attitude to innovation: Do they have regular innovation and know when to pull out? Innovation increases the success of new revenue stream and allows frog leaping over competition. Pulling out when something sucks mean that they know how to allocate resources carefully.

Just my own thoughts, however, price is still a thing. I feel that the majority of the consumer companies in the market are over price, due to the recent events. A lot of us, feel that some companies might be the target of acquisition. That, I am slightly skeptical. Many MNC has made successful inroads into the market and consumers tend to be a very disloyal bunch. The house brands growth has also made the MNC wary of investing in a region where price sensitivity is high.

Going to your question of whether Super has the ability to be a success story, I am not so sure as well. They need a key product with USP (unique selling point) to be their beach head (key product hurdle), just like what 100 Plus did for FNN. If you catch your friend only drinking or subconsciously consuming a Super product, that will be a good signal to look into it. Price is still essential though.

[Muser]

[quote='Muser' pid='87653' dateline='1404052251']
[quote='smalkmus' pid='87567' dateline='1403882385']
[quote='Muser' pid='87545' dateline='1403873113']
[quote='CY09' pid='87539' dateline='1403864649']


Going to your question of whether Super has the ability to be a success story, I am not so sure as well. They need a key product with USP (unique selling point) to be their beach head (key product hurdle), just like what 100 Plus did for FNN. If you catch your friend only drinking or subconsciously consuming a Super product, that will be a good signal to look into it. Price is still essential though.

High PE doesn't matter. If the company earns higher than 15% returns on capital over many years, that's sufficient margin of safety to provide high returns.

That's the difference between buying cigar butts (statistically cheap stocks) and paying up for quality stocks.

Check this http://www.outlookbusiness.com/article_v...tid=285698

[CityFarmer]

[quote='Muser' pid='87653' dateline='1404052251']
[quote='smalkmus' pid='87567' dateline='1403882385']
[quote='Muser' pid='87545' dateline='1403873113']
[quote='CY09' pid='87539' dateline='1403864649']


Going to your question of whether Super has the ability to be a success story, I am not so sure as well. They need a key product with USP (unique selling point) to be their beach head (key product hurdle), just like what 100 Plus did for FNN. If you catch your friend only drinking or subconsciously consuming a Super product, that will be a good signal to look into it. Price is still essential though.

High PE doesn't matter. If the company earns higher than 15% returns on capital over many years, that's sufficient margin of safety to provide high returns.

That's the difference between buying cigar butts (statistically cheap stocks) and paying up for quality stocks.

Check this http://www.outlookbusiness.com/article_v...tid=285698

"Pay Up, But Don’t Overpay" is a proven concept, the same for the Mr. Buffett's "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

However, the key indicator to determine the fair price, should be growth rate, rather ROIC. ROIC is important to determine a wonderful company, but it is the growth rate determine the fair price.

(not vested but monitoring)

[Bubbachuck]

1H2014 result is released. Net profit dropped significantly. Mr. Market starting to react.

[dxdx]

Expected poor 2Q performance, will there be an improvement in 3Q as the Thai situation seems to have stabilised.

Potential value stock post freefall, as Super still has bountiful cash with little debt.

[Bubbachuck]

Expected poor 2Q performance, will there be an improvement in 3Q as the Thai situation seems to have stabilised.

Potential value stock post freefall, as Super still has bountiful cash with little debt.

Given their good history and the ability of the management. This could be a potential opportunity. I was tempted when it dropped to 1.34 few months ago. [emoji39]