Updated (10 May 2022)
A defensive play amidst inflation
- FY21 financials: Top-line growth. Fuelled by the packaging segment,PSC’s top line grew by 13.1% YoY in FY21. However, the overall bottom line declined by 9.7% YoY, due to lower other income and higher costs.
- Inorganic acquisitions. In December 2021, PSC announced the acquisition of C.K.H. Food Trading Pte Ltd and 123 Mart Pte Ltd. The acquisition is effective 1 January 2022 and will open up more distribution channels for the company and is expected to drive the consumer segment revenue.
- Key revenue driver: Packaging business. Despite the decline in the consumer segment revenue, the packaging segment revenue grew substantially, driven by higher sales volumes in both Singapore and China. The increase in average selling price from Singapore’s operations also contributed to higher revenue. However, the underperformance of the consumer segment was due to the high base in 2020, as there was higher demand for essential products like rice and paper during the lockdown period in Singapore.
- We maintain PSC with a NEUTRAL rating but raised our target price to S$0.45 from S$0.42, based on an unchanged 11x P/E pegged to FY22F EPS.
FY21 financials review
PSC’s revenue jumped by 13.1% YoY to S$533.3mn in FY21, however, net profit after tax declined by 9.7% YoY to S$29.9mn. This was due mainly to a decrease in the one-off government grants and higher expenses such as labour costs. FY21 gross profit margin stood at 21.2%, a decrease of 2.1 percentage points compared to the previous period. Meanwhile, the net profit margin declined from 7% in FY20 to 5.6% in FY21.
Inorganic acquisitions to spur growth
In December 2021, PSC announced the acquisition of 40,000 ordinary shares or 80% of the issued and paid-up share capital of C.K.H. Food Trading Pte Ltd and 123 Mart Pte Ltd for a total consideration of S$3.3mn. The acquisition is effective 1 January 2022. C.K.H. is a leading food distributor which supplies a wide variety of food products close to 1,500 establishments including wholesalers and e-commerce platforms such as Shopee, Lazada and Qoo10. Meanwhile, 123 Mart is a budget-friendly grocery minimart. PSC’s acquisition of C.K.H and 123 Mart will expand the company’s distribution channels, improve economies of scale and overall bring synergy to the business.
Packaging business outlook
PSC’s packaging business is the main growth driver of the company and revenue grew 21.3% YoY to S$367.4mn in FY21. Packaging business made up 62.6%/64.3%/68.9% of total revenue in FY19/20/21, commanding a greater share of revenue YoY and offsetting the decrease in revenue from the consumer segment.
Valuation & Action
We maintain PSC with a NEUTRAL rating but raised our target price to S$0.45 from S$0.42, based on an unchanged 11x P/E pegged to FY22F EPS
Downward pressure on margins due to higher costs; Slowdown of China’s economic activities.