Petra Foods - Sweetness From Quality and Growth

Petra Foods is an integrated player in the cocoa value chain with two
complementary divisions, namely cocoa ingredients and branded consumer.
Riding on global names in food & beverage. Petra Foods is the thirdlargest
player for cocoa ingredients in terms of bean grinding capacity with a
global market share of 9%. Its products are highly customised and are
shipped to top-tier food & beverage companies such as Nestle, Mars and
Cadbury. The JV with Armajaro Trading gives Petra Foods a foothold in
Europe, the largest market for cocoa ingredients.
Fast-growth markets in Southeast Asia take Petra to greater heights.
According to AC Neilsen, Petra Foods is the market leader in Indonesia for
chocolate confectionery with a market share of 61.4% in 2006. Indonesia is
the largest and fastest-growing market in Southeast Asia, expanding at a
CAGR of 29.8% from 1998 to 2005. Petra Foods’ flagship brands,
SilverQueen and Delphi Top, have a combined market share of 41.5% in
Indonesia.
Two pillars of strength. The cocoa ingredients and branded consumer
divisions provide two engines of growth. The cocoa ingredient division
benefits from the outsourcing trend in the food & beverage industry. The
branded consumer division benefits from rising consumption of chocolate
confectionery in Southeast Asia. The diversified portfolio of complementary
businesses and blue-chip customer base provide strong defensive qualities.
Initiate coverage with BUY. Our target price is S$1.99, derived from
applying PE of 19x for earnings from the cocoa ingredients division and PE of
18x for earnings from the branded consumer division for 2008.