FOOD EMPIRE

It is a common perception that Super is very much larger than Food Empire. But this is not the case as shown below:


..............................Food Empire........Super

Branded products.........$300m............$355m
Food Ingredients..............0...............$164m
Total revenue...............$300m............$519m
Attributable profit............$26m..............$79m
Net margin.......................9%...............15%
EPS..............................5c.................14c
NAV..............................38c.................72c
Price-earnings ratio..........13.....................31


Super's revenue from branded products is not much higher than Food Empire's.

Super's overall revenue is much higher because of sales of food ingredients. When Food Empire's creamer and coffee powder factories are in full production, and sell parts of their output, the gap between the two companies may narrow.

More importantly, using its own food ingredients to produce branded coffee will bring Food Empire's 9% net margin closer to Super's 15%.

Net margin will also be helped when Food Empire produces potato chip from its own factory instead of relying on OEM now.

Is the low valuation of Food Empire (13 times profit vs Super's 31 times) justified? It seems that investors are very concerned about political and currency risks of Russia and the former CIS states, where Food Empire derives 90% of its revenue.

Russia is not an easy market and it has taken Food Empire lots of years and guts to become the No.1 in instant coffee mix.

There are more than 150 3-in-1 coffee brands in Russia, versus fewer than 10 in Singapore.

There are logistical headaches of transporting goods in harsh temperatures that dive to -30 deg Celsius across a country that spans 11 time zones.

Food Empire has sunk today to 39.5 cents. Will Ukraine and Russia be in turmoil? Actually, it's just Ukraine. However, the investor sentiment has been dampened, so shortists and others just pushed the stock price down.

Food Empire has sizeable market shares in Russia and Ukraine.

www.nextinsight.net/index.php/story-arch...s-into-its-prospects

Russian ruble is down 10% since the start of the year. (32 ---> 35 ruble per USD)

Food Empire share price is down about 24% since the start of the year. (54 cts --> 41 cts)

another stat: Russia accounts for about 55% of Food Empire's revenue.

The ruble has risen by ~7%, recovering nearly half of its losses since the peak of the crisis.

In the most recent two quarters, Food Empire's financials were adversely impacted by the downward revaluation of its outstanding non-USD trade debts, due to its USD reporting currency.

If the Russian geopolitical situation improves, the ruble and Ukraine currency hryvnia could rebound just as quickly as they came down, which means Food Empire could benefit from the positive FX translation gains in subsequent periods.

Operationally, Food Empire continued to perform well in 1Q14, managing to eke out a 2% y/y sales growth in Russia to US$37.1m, and posted a 41% jump in sales in other markets (Europe, Middle East, Vietnam and Malaysia) to US$6.2m.

Sales from the Eastern Europe and Central Asia region fell 5% to US$16.8m, nevertheless, sales from Ukraine would have been up 19% in local currency terms, despite the turmoil in the region.

Food Empire shares continue to languish near a two-year low, and trade at par to book value.

Investors will likely be keeping an eye out for an earnings recovery in the upcoming 2Q14 results (estimated 13 Aug), and return of research coverage, as a potential re-rating catalysts for the stock.

Seen @ Giant store in Tampines: Klassno, MacChocolate, MacTea --- products of Food Empire commonly sold in Russia, Ukraine, etc.