Food Empire Holdings - RHB Invest 2017-11-10: Buy More Food Ingredients

Food Empire Holdings - RHB Invest 2017-11-10: Buy More Food Ingredients FOOD EMPIRE HOLDINGS LIMITED F03.SI

Food Empire Holdings - Buy More Food Ingredients

  • Food Empire’s 9M17 core PATMI of USD15.8m exceeded our and the street estimates. 
  • As oil prices improve, we believe this would bode well for the economies where the company’s core markets are. Also, its new business units – the Vietnam market and food ingredients – continue to mature. This should lead to lower marketing expenses and improved profitability, moving forward. 
  • Reiterate BUY, with a higher TP of SGD1.00 (from SGD0.95, 52% upside) pegged to 18x FY18F core P/E.

Food ingredients segment is the new darling. 

  • Food Empire’s upstream projects commenced operations in 2015, and have since made significant headway in their sales. Revenue from its other markets surged 43.2% YoY over 9M17 on the higher sales contribution from these new projects.
  • Since its food ingredients business’ advertising costs are lower, we expect its overall percentage of revenue spent on selling and distribution expenses to decrease over time. This would improve earnings growth in the near term.
  • Management cited that the ingredients business is a key driver of growth moving forward. We expect the group to continue building more upstream capabilities in the near future.

Russia and other CIS markets. 

  • Russia and other Commonwealth of Independent States (CIS) markets account for about 60% of Food Empire’s revenue. The gradual recovery of oil prices should lend more stability to the currencies and economies of these markets. 
  • As Food Empire has a leading market share in these markets, we believe the stabilising of these economies would help to reduce negative fluctuations in the group’s income.

Maintain BUY, with TP of SGD1.00. 

  • In view of the stronger growth in revenue and better cost containment, we raise our FY17-18F core PATMI by 10% and FY19F PATMI by 7%. 
  • We also roll over our valuation to FY18F, resulting in a higher TP of SGD1.00.

Key risk lies in Caffé Bene. 

  • Caffé Bene is still in the red. As at 9M17, Caffe Bene dented the associates’ contribution by USD1.3m. As such, there could be a risk of asset impairments in 4Q17, if its performance does not improve.

Juliana Cai CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-10
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.00 Up 0.950