Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes — just in case they’re material to our investing thesis. The Straits Times Index (SGX: ^STI) has managed to move up by 0.65% to 3,305 points today with 20 of its 30 constituents ending the day with gains. Let’s venture outside the index for a look at two market beaters. Petra Foods Limited (SGX: P34) has climbed by 2.98% to S$3.80. Just two days ago on Monday, the chocolate confectionaries manufacturer released its third quarter earnings and saw…
Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes — just in case they’re material to our investing thesis.
The Straits Times Index (SGX: ^STI) has managed to move up by 0.65% to 3,305 points today with 20 of its 30 constituents ending the day with gains. Let’s venture outside the index for a look at two market beaters.
Petra Foods Limited (SGX: P34) has climbed by 2.98% to S$3.80. Just two days ago on Monday, the chocolate confectionaries manufacturer released its third quarter earnings and saw its quarterly revenue fall by 6.5% year-on-year to US$118.2 million. This drop weighed on the bottom-line significantly as Petra Foods’ PATMI (profit after tax and minority interests) sunk by 29.1% to US$10.5 million.
As Petra Foods conducts most of its business in the Indonesian rupiah but yet reports its earnings in the U.S. dollar, currency fluctuations can play a big-role in how its quarterly financials change. This also means that constant-currency-based growth might be a better gauge of the company’s long-term operating performance.
On that note, there were some strong headwinds this year given that the rupiah has “weakened by an average of 18.0%” against the U.S. dollar in the first nine months of 2014. But that said, Petra Foods’ results in constant currency terms weren’t all that fantastic either as revenue grew by only 1.6% while PATMI actually still posted a decline – this time of 18.7%.
In 2014, the sales run-up for the Lebaran festival occurred in the second quarter whereas it happened the third quarter in 2013. In addition, Petra Foods had also made a decision in 2013 to discontinue the distribution of less profitable confectionary brands. All these, in addition to the currency impacts, had set-up a particularly tough year-on-year comparison for the third quarter of 2014 and were reasons given by management to explain the anaemic performance during the quarter.
Over the nine months ended 30 September 2014, a better picture of Petra Foods’ progress can be seen as revenue grew by 12.7% in constant currency terms while PATMI increased by 5.9%. But with Petra Foods carrying an elevated valuation of 34 times its trailing earnings, management would really need to boost the company’s growth in order to not disappoint the market’s high expectations.
Petra Foods commented in its earnings release that it expects “the growth momentum in local currency terms to continue” for its business. Also, to sustain its long-term growth, the company will be focused on the following initiatives:
“Growing our key brands in our markets, further broadening our routes‐to‐market and investing to build capacity and capabilities in our manufacturing assets”
Let’s see how Petra Foods would grow over the next three to five years based on its current plans.
Next up we have postal and logistics outfit Singapore Post Limited (SGX: S08). The company’s shares have climbed by 2.13% to S$1.92. Last week, Singapore Post released its second quarter earnings and saw growth in both its top- and bottom-line.
For the quarter ended 30 September 2014, revenue had grown by 8.1% to S$220.3 million compared to a year ago. Meanwhile, profit had stepped up by 5.5% to S$37.6 million. Growth in Singapore Post’s ecommerce related businesses had been a big factor in the company’s overall growth.
Although Singapore Post had turned in better results, the company also warned that its traditional postal business in domestic mail and hybrid mail had remained “challenging.” The two sub-segments, which fall under Singapore Post’s Mail & Digital Services business segment, saw a respective 5.2% and 10.9% year-on-year drop in revenue. Singapore Post also added that the Mail & Digital Services business segment is “expected” to continue to face declining profit margins. This would be an area for investors to watch.
In the earnings release, Singapore Post mentioned that it’s still in the midst of a transformation to become a regional eCommerce logistics operator. That’s why the progress of Singapore Post’s Logistics and Retail & eCommerce segments would be an important area for investors to keep track of in the future. Ideally for investors, their growth would be able to more than offset the decline in the Mail & Digital Services segment over the long-term.
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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 writer Chong Ser Jing does not own shares in any companies mentioned.