| • After a 30+% gain over the last 12 months, Food Empire's stock price has been catching a breather of late. What can investors look to for a further re-rating of the stock? • Well, that's exactly what CGS-CIMB analyst William Tng sought to address. After meeting management, he outlines in a report strategies that Food Empire may take. • There are paths to grow its business organically -- instant coffee production in Kazakhstan and expanded capacity for non-diary creamer production, which is currently playing second fiddle to its core instant coffee business for consumers. • Near-term, if its profits continue to stay strong, and given its net cash of S$120+ million as at end-2023, Food Empire has the ability to return more cash to shareholders via higher regular dividends. Read more below .....  |
Excerpts from CGS-CIMB report
Analyst: William Tng, CFA
Food Empire Holdings Ltd
■ We visited Food Empire Holdings Ltd (FEH) for an update on 26 Mar 2024.
■ In our view, YTD operations have been business as usual, and we expect FEH to provide a 1Q24F business update in May 2024F. |
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| What will it take for FEH’s valuation to re-rate further? |
We currently value FEH using 11.2x CY25F P/E, 1.0 s.d. above its 5-year mean (2019-23).
In our view, the pathways for FEH to improve its valuation to 14.4x P/E, 2.0 s.d. above its 5-year mean, include:
a) building a new 3-in-1 coffee mix plant in Kazakhstan to further grow its brand strength and presence in the CIS region and Kazakhstan, where the group is seeing strong demand for its products;
b) further grow its food ingredients business (FEH has completed its non-dairy creamer expansion in Malaysia, and we expect volume production to commence by 2Q24F.
Food Empire produces non-diary creamer from its factory in Pasir Gudang, Johor. Photo: Company
In India, FEH’s spray dry and freeze dry coffee plants are at full capacity and FEH expects demand to remain strong.
We think FEH can grow its food ingredients business into a bigger net profit contributor over the next 5 years via expansion with new plants for non-dairy creamer, coffee powder and potato snacks); and
c) explore valuation uplift via dual listing in other exchanges where there is stronger interest in branded food and beverage companies.
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CASH RICH |
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Key re-rating catalysts:
a) improving operating margins on stabilising market demand, and
b) maintaining its market share in its key market, Russia.
Key downside risks are:
1) an escalation in the Russia-Ukraine conflict affecting its Russian operations, and
2) depreciation of the Russian ruble against US$, leading to lower revenue in US$ terms.
Full report here
