Petra Foods First Quarter Results: Snacking on Higher Profits

Confectionary maker Petra Foods (SGX: P34) reported its first quarter results on Wednesday evening and posted a 20% year-on-year increase in quarterly profit from US$11.7m to US$14.1m for its Branded Consumer division. Meanwhile, the division’s top-line grew by 8% from US$118.3m to US$127.4m.

The company actually has two business divisions: Branded Consumer and Cocoa Ingredients. The latter will be sold off to Europe-based chocolate manufacturer Barry Callebaut for an estimated US$950m and the process will be completed by June or July this year.

The Cocoa Ingredients division made a loss of US$29m in the first quarter of 2013, compared to a profit of US$4.6m last year. The division had suffered from industry pressures affecting cocoa suppliers globally, resulting in the losses.

With that, let’s move on to what’s important with Petra Foods – its Branded Consumer division, which carries chocolate and sugar confectionary brands like Delfi and Goya. The division does the bulk of its business in Indonesia (with 74% of the revenue for the quarter coming from there) where it achieved double digit year-on-year sales growth for the quarter. That was due to Petra Foods efforts to widen the distribution network for its products enabling them to reach more customers.

The division also does business in other South-East Asian countries like Philippines, Malaysia and our own home in Singapore. Philippines, in particular, also grew its sales by double digits on the back of new product launches and a greater distribution reach.

Profitability at the Banded Consumer division improved greatly from last year as gross margins increased by two percentage points to 32.5%. This was a result of cost-controls and the sale of a larger amount of higher-margin products.

For the rest of the year, management expects strong performance from the Branded Consumer division as it continues launching new higher-margin Premium products. Petra Foods will also be busy expanding its distribution network to reach even more customers.

The company’s Chief Executive Officer, Mr John Chuang added, “Our strategic focus is to continue driving growth and profitability in our key chocolate confectionery markets in Southeast Asia. With the vibrant consumption environment in our key consumer markets, we will look to not only grow our core categories, but also look to expand into new categories to capture the significant growth opportunities.”

Despite the vote of confidence in the Branded Consumer division, investors will have to note that the Cocoa Ingredients division is expected to make significant losses. That red-ink will bleed onto Petra Foods’ financial statements until the sale of the Cocoa Ingredients division is completed.

Petra Foods’ shares are currently worth $4.30. It carries a lofty Price-Earnings ratio of 46 (based on earnings from the Branded Consumer division) and a dividend yield of 1.1% based on last years’ full year pay out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.