Food Empire Holdings - RHB Invest 2017-05-12: Rise Of The CIS

Food Empire Holdings - RHB Invest 2017-05-12: Rise Of The CIS FOOD EMPIRE HOLDINGS LIMITED F03.SI

Food Empire Holdings - Rise Of The CIS

  • Food Empire’s 1Q17 core PATMI of USD5.0m has came in above our as well as consensus’ expectations. 
  • Except for the market in Ukraine, all the Commonwealth of Independent States (CIS) markets showed tremendous growth in sales on the back of currency appreciation and a change in business model. 
  • Moving forward, we expect sales from Indochina to pick up as the company expands its operations in Myanmar. 
  • We lifted our TP to SGD0.85 (from: SGD0.76), implying a 46% upside from current levels and maintain BUY.

Outperformance by Kazakhstan and CIS markets. 

  • Sales from Kazakhstan and the other markets in the Commonwealth of Independent States (CIS) grew by more than 100% YoY to USD9.2m. 
  • According to management, this was due to a change in the business model whereby the company reduced the price compensation to distributors and promoted more aggressively. We believe this is also in part attributed to the appreciation of the Kazakhstan Tenge (KZT) and the other currencies in the CIS. 
  • Sales from Russia also grew by 23% YoY on a stronger RUB. These were however partially offset by a lower revenue (-15% YoY) and sales volume in Ukraine. We expect the markets in Russia, Kazakhstan and the other CIS markets to continue their strong performance in 2017.

Expansion in gross margin. 

  • 1Q17 gross margin was lifted to 39.9% (+7.8ppt YoY) driven by price hikes, a change in business model and currencies appreciation. As the upstream projects continue to gain growth momentum, we believe the profitability of the company could continue to improve.

Indochina affected by earlier Chinese New Year. 

  • Sales from Indochina fell by 18% due to an earlier Chinese New Year this year. We expect the business in Indochina to pick up from 2Q17 onwards as the management pursues its access into the Myanmar market. 
  • We are also expecting the company to come up with more variants of coffee products in Vietnam this year.

Reiterate BUY with TP SGD0.85. 

  • We raised FY17F earnings estimate by 13% and the forecast for FY18-19 by 4% each year on the back of a strong 1Q17 result. This lifted our TP to SGD0.85 pegged to an 18x FY17F P/E in line with peer average.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-12
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.85 Up 0.760