SINGAPORE (Nov 16): Daiwa is maintaining its “underperform” call on Super Group but raising its target price to 76 cents from 73 cents as 3Q results came in below forecasts and new product launches will take time to build traction.

Super Group reported a 25.6% decline in its 3Q15 PATMI to $7.4 million from a year ago, on the back of a 1pp decline in the operating margin and a 6.6% decrease in revenue.

Meanwhile, the 3Q15 operating margin, which was below our forecast, was dragged down by higher-than-expected distribution and selling expenses, due to more promotions.

Further, management said it had officially launched new products in Singapore and Malaysia that target the “premium mass market”, a previously unaddressed customer segment.

“Looking ahead, we expect an increase in near-term advertising spend as the company seeks to drive product awareness and sales,” says analyst Jame Osman in a Friday report.

Osman is cutting his 2015-17E FI segment revenue by 4-5%, and revising down his operating margin assumptions to reflect his expectations of an increase in marketing intensity in the near term.

“We reaffirm our Underperform ating, but raise our 12-month PER-based TP to $0.76 (from $0.73), based on an unchanged target PER of 15x...With the stock trading at a 2016E PER of 17.2x, valuations appear unattractive...” adds Osman.

Super Group is down 1.2% at 86 cents.