Petra Foods warns of loss

Check out these 2 culprits.

According to CIMB, Petra issued a warning of 4Q12 losses. Main culprits were a margin deterioration for cocoa ingredients and one-off charges relating to the division’s disposal. 

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Full year, the group remains profitable with the help of its branded consumer business. We slash our FY12 EPS by 60%. Longer term, this blip does not detract from Petra’s growth, which will now stem solely from branded consumer once the cocoa-ingredients disposal is over.

No change to our SOP target price. Valuations appear rich following the stock’s 20% appreciation since our Dec upgrade, prompting us to downgrade it from Outperform to Neutral.

What Happened. Petra expects to slip into losses in 4Q12. The two culprits were firstly, a further deterioration in cocoa ingredients’ margins, sending this segment into operating losses not just in 4Q12 but also FY12 (9M12 EBITDA was US$35m).

Secondly, one-off charges totalling US$27.5m arising from the disposal of its cocoa ingredients business to Barry Callebaut. The disposal remains on track for completion in Jun-Jul 13. 

What We Think. The losses could trigger near-termselling. Longer term, however, this quarter’s hiccup does not detract from the group’s growth prospects. Cocoa ingredients are headed for structural headwinds but will no longer be a drag once the unit is completely disposed of.

As for the exceptional charges, they are non-recurring and do not taint Petra’s underlying business. Its core branded consumer business remains healthy with Petra retaining its dominance in Indonesia. Its expansion in the Philippines should provide a further pair of wings.

What You Should Do. Take some profits off the table following the stock’s outperformance. Current price implies 17x EBITDA for its branded consumer business vs. Indonesian peers’ 16x average. Petra will report its FY12 results on 27 Feb.