I bought Super Coffeemix on 3rd April 2008

Rationale

I had already compared Super Coffeemix with Food Empire & Tsit Wing in an earlier post. I valued Super Coffeemix to be around 72 cents while it was trading above 90 cents then. That was 26th June 2007. Today, fundamentals had clearly improved for Super Coffeemix, yet the market actually gave a discount even below the outdated 72 cents. This is yet another proof that equity is commonly mispriced by the market, i.e. overpricing in market exuberance and underpricing in pessimism.

Plus - Keeping cost low but is it possible?

On 15th January 2007, Super Coffeemix announced that it had signed a MOU with HLH Group, formerly PDC Corp to grow and supply coffee beans for the former at a discount. The following is quoted directly from the annoucement:

Under the MOU, PDC will cultivate and grow coffee plants on parts of its Indonesian plantations suitable for cultivation and production of coffee beans. Super Coffeemix will purchase all such coffee beans produced by PDC at a discount to the then prevailing international commodities market.

If they are able to keep the cost of raw materials down, they will enjoy a comparative advantage over other coffee companies. However, its still too early to tell whether this venture had succeeded.

Minus - Rather aggressive growth plans

New subsidiaries, Acquisitions and other Investments since 2007

1. March 2007 - JV Co
2. March 2007- Investment in Tianjin Super Lifestyle Food Development Company
3. April 2007 - Super Malikha Pte Ltd (“SMPL”) in PRC
   
4. July 2007 - Acquisition of 6.84% of PSC Corp

Increase in investment

1. March 2007- Increase in investment in JHS Holdings
2. May 2007- Increase in investment in Super Coffeemix Marketing Sdn Bhd
3. July 2007- Increase in investment in Tianjin Super Lifestyle Food Development Company
4. Nov 2007- Increase in investment in Wuxi VV Super Coffee Co. Ltd

Quasi-equity loans

1. August 2007- Quasi-equity loan to Sun Resources
2. November 2007- More quasi-equity loan to Sun Resources
3. March 2008- Quasi-equity loan to JHS Holdings
   

While investments might be good be for the company, the aggressive nature in the way Super Coffeemix pursue them might be a cause of concern. This is because the quality of returns (i.e. return on equity) might be sacrificed just to achieve growth. Another cause of concern is the amount of quasi-equity loans to its subsidiaries. These amounts to more than $ 10M SGD to date collectively.

Conclusion

To date, I had acquired 3 out of 4 companies listed on SGX with business involving coffee and other common daily instant food & beverages. Geographically, my holdings had exposure to Russia, Ukraine, Central Asia, China and Southeast Asia. The company I missed out is Viz Brand. In terms of market, it had duplication with Super Coffeemix and I would think it had a much stronger brand than Viz Brand.