Food Empire - RHB Invest 2018-05-14: A Strong Caffeine Rush

Food Empire - RHB Invest 2018-05-14: A Strong Caffeine Rush FOOD EMPIRE HOLDINGS LIMITED SGX: F03

Food Empire - A Strong Caffeine Rush

  • Food Empire delivered a spectacular set of 1Q18 results. PATMI grew 14% y-o-y to USD7.2m, on the back of strong revenue growth and the absence of a loss from its Korean associate. Excluding forex gains, core PATMI jumped 42% y-o-y to USD6.8m, meeting 30% of our full-year estimate.
  • We think the stock’s valuation, at 11.5x FY18F P/E, is very compelling at this moment, given the company’s strong organic growth.
  • Its new instant coffee plant in India – set to commence operations in 2020 – could lead to the next leg of growth.
  • Reiterate BUY with an unchanged Target Price of SGD1.07, offering a 59% upside.

Firing on all fronts.

  • The group delivered higher revenue across all its markets in the last quarter. Overall, 1Q18 revenue grew 16% with Indochina, Ukraine and other markets leading the growth. 
  • Indo-China’s revenue soared 78% y-o-y on the back of higher sales volume and the Lunar New Year festive season occurring later compared to last year. It also revived sales in Ukraine through a restructuring of its distributorship. 
  • In addition, the upstream projects including the non-dairy creamer plant and snacks manufacturing facility continue to drive higher sales growth in other markets.
  • The increase in gross margin was partially offset by higher advertising and promotional expenses, as well as higher effective tax rates.

Diversifying into Asia.

  • Food Empire’s key focus remains to expand outside of its core commonwealth independent states (CIS) markets into new markets like China and Myanmar. The group has a sound track record in the upstream manufacturing business, and plans to open a second coffee plant in India in 2020. 
  • We believe the commencement of the plant could help to drive its next leg of growth.

Compelling valuations, reiterate BUY.

  • Currently the stock is trading at 11.5x FY18F P/E, which is rather compelling compared to its peers. Our Target Price is based on 18x FY18F P/E, based on the peer average. 
  • We do expect 2Q18 to be weaker, due to seasonality and the depreciation of the Russian ruble (RUB).
  • Nonetheless, we expect its full-year performance to be satisfactory.

Juliana Cai CFA RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-14
SGX Stock Analyst Report BUY Maintain BUY 1.070 Same 1.070