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How We Made Our Members a 50% Return in 5 Months

The Stock Advisor Gold Team Visits Super Group

Originally published 29 September 2016

On 9 September 2016, we ventured across the Causeway to visit Super Group’s (SGX: S10) factory in Johor, Malaysia. Super Group is one of the live Singapore Buy recommendations in Stock Advisor Gold.

Together with about 20 Stock Advisor Gold members, we were granted an exclusive tour of the factory, from its pilot plants to its research and development laboratory. We literally got to smell the coffee and see potato chips being produced.

Over the five-hour factory visit, we learnt more about Super Group. Here are some highlights from the trip.

On production

  • Super Group’s founder, David Teo Kee Bock, is the driving force behind the company’s customised production machinery and equipment. The culture of customisation is still very much alive today.
  • Typically, after a new product is developed, it will be tested in the company’s pilot plant to see if it can be manufactured with quality and scalability, consistently. After that, the product can be moved into the mass-production phase.
  • Super Group has added new capabilities such as its coffee freeze-drying plant in recent years. The freeze-drying process can help produce higher-quality and higher-margin products, compared to the traditional spray-drying process. BHE (botanical herbal extracts), LGSS (liquid glucose syrup solids), and NOP (nutritional oil powder) are new facilities that have been added too.
  • Super Group is also the Original Equipment Manufacturing (OEM) partner of “Pringles” branded potato crisps in Asia. Pringles is a popular brand owned by Kellogg Company (NYSE: K). Super Group is the key manufacturer of potato crisps for “Pringles” outside of the United States.
  • Its non-dairy creamer plant in Singapore is in the midst of being relocated and integrated into existing facilities in China.

On the business

  • Candy mentioned that 2016 would probably still be a year of transition for the company, as most of its new initiatives are still being rolled out. The benefits will only be fully apparent from 2017.
  • Management prefers to only add new products that have gross margins of more than 30%. The company now has a focus on higher-end, premium products.
  • With that new focus, we are assuming that Super Group’s ROE should improve over time.
  • The newly-launched Essenso product is an example of the new initiatives. More products in the tea and cereal segments are already in the pipeline.
  • Management has an internal target of growing its revenue in double-digit percentages by 2022.
  • Super Group buys forward and obtains a natural hedge of its US dollar exposure in procurement. Most of the company’s raw materials are priced in US dollars.
  • The company sees the tea and nutrition-enhanced beverage market as one with future growth potential.
  • Super Group acknowledged that most of its customers in its Consumer business segment are aging. So, it has started the re-branding process through is strategic development objectives via Branding, Innovation, Diversification (BID) initiatives that target the younger generation and rising middle-income crowd. For instance, the company has tapped on younger local Malaysian celebrities’ influence on the relevant demographics by getting them to to endorse its products. Super Group has also been including channels such as social media as a marketing tool.
  • Its Food Ingredients business has mainly been China-focused and based on the non-dairy creamer product pre-2013.
  • The company has always recognised that being too dependent on a single market and single category can be risky and it has commenced BID for its Food Ingredients business since 2013. It is now diversified in both its product range and its geographical customer base.

On Shareholders

  • Yeo Hiap Seng (SGX: Y03) is one of the major shareholders of Super Group (an 11.68% stake as of 16 March 2016). However, Super Group does not see any conflict of interests with its focus tea products. It is planning more healthy tea products and marketing mainly to businesses, instead of moving into packaged tea products that are similar to Yeo Hiap Seng’s products. Yeo Hiap Seng has been a passive investor. It has not interfered with the management of Super Group before.
  • Local billionaire Sam Gooi and his company, Tee Yih Jia Food Manufacturing, have been increasing their stake in Super Group. Gooi has generally been a passive investor in Super Group, as well.

Disclosure: At the time of original publication (29 September 2016), Chong Ser Jing owned shares in Super Group. Stanley Lim owned shares in Super Group. The Motley Fool Singapore did not and does not currently own shares in any of the companies mentioned.