Where to Next for this “Super” Multi-bagger?

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Last week, I covered the business segments of Super Group Ltd. (SGX: S10).  This week, I would like to look at a geographical breakdown of the coffee retailer’s revenue.

As a recap: Super Group has been a great long-term winner over the past five years. From 1 January 2009 to its closing price yesterday, it has made capital gains of 580%. By comparison, the total returns of the SPDR STI ETF (SGX: ES3), a proxy for the Straits Times Index (SGX: ^STI), was just 77.7% for the same duration.

Where to next, Super?

From its various earnings reports over the years, we are able to plot out the development of Super Group’s sales from different geographical regions from 2009 to 2013 (the company has a financial year that coincides with the calendar year).

In 2013, Singapore made up 18.5% of its revenue. South East Asia is the largest contributor to the company’s revenue with a 59.6% slice of the pie while East Asia, which includes China, takes up the rest of a sizable 21.9%. The South East Asia region includes Myanmar and Thailand, the top two markets for Super Group.

Source: Company financial reports

A closer look

As I shared last week, Super Group has two major business segments, namely Branded Consumer (BC) and Food Ingredients (FI). Over the past five years between 2009 and 2013, it has been the latter business segment which has mostly fuelled the company’s top-line growth.

Matching the growth of the FI business segment with the geographical point of view, we can see that the growth in the business segment has, in turn, driven growth in Southeast Asia and East Asia. In particular, the East Asia market saw sales growing the most percentage-wise as revenue from the region jumped from $18.3 million in 2009 to  $124.2 million in 2013. Over the same timeframe, the FI segment grew sales by $161.3 million from S$31.2 million to S$192.5 million.

China is the major country in the East Asia segment and is where Super Group’s non-dairy creamer production (NDP) is done. Looking forward, Super Group is investing into the production capabilities of healthier products such as nutritional oil powder (NOP) and liquid glucose syrup. The latter in particular can also help to reduce the input cost for its NDP production.

The company also started sharing its earnings conference calls last week. From the latest call, we are able to glean additional thoughts from management on the regional developments of Super Group.

Darren Teo, Assistant General Manager for Super Group, shared that the company’s focus for the Branded Consumer (BC) segment would to strengthen or defend its leading positions in Singapore, Malaysia, Thailand, and Myanmar. The company was also looking at making inroads into Philippines; in this case, my colleague Stanley has shared that Super Group is entering the country through a joint venture with San Miguel.

The branding strategy for the BC segment will also be customized for each country. For instance, the company is implementing a multi-brand strategy to cater for varying income levels in countries like Myanmar.

Over the longer term, new markets like Vietnam and China are of interest to the company for introducing its branded consumer products like instant coffee and instant tea.

Foolish bottom line

If I attempt to draw Super Group’s strategy with a crayon, it might look like this:

Super Group is focusing on brand building and awareness within Southeast Asia. Its suite of brands allows it to customize its product offerings according to the varying income levels of each country.

For the longer term, the coffee retailer is growing the FI segment into countries like China in order to learn about the taste profiles of the consumers there. It is possible that Super Group might gradually move its brands into China one day with all the accumulated knowledge it has learnt from its FI operations. An important side benefit of a bigger FI segment would be higher economies of scale – this helps control the input costs of the company’s BC segment, whose main raw materials are coffee and dairy.

Perhaps, the product development of healthier drinks like tea might also be done with China in mind. According to research outfit Euromonitor, China is the largest tea market in the world.

These are my views and observations on the company’s business developments.  Every Foolish investor might want to come to their own conclusions and continue observing the company in order to validate any assumptions made.

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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 Chin Hui Leong owns shares in Super Group.