Food Empire - RHB Invest 2020-01-17: Sipping Vietnam’s Coffee Culture; Still BUY


Food Empire - Sipping Vietnam’s Coffee Culture; Still BUY

  • Maintain BUY, 18% upside to our target price plus c.2% yield.
  • Visiting Food Empire’s second largest market, Vietnam, early this week, we witnessed the high visibility of its Café Pho products vis-à-vis its competitors in Ho Chi Minh City. With an extensive network of sales representatives and a strong marketing team, we believe Café Pho should be able to grow its market share, while revenue and margins could be further improved with the increased penetration of new products.

Success of the Vietnam market.

  • Vietnam is FOOD EMPIRE (SGX:F03)’s second-largest market, contributing c.20% to topline. While the group has been in Vietnam since 1993, the business only took off after it introduced Café Pho, a premium 3-in-1 ice coffee mix in 2013. The business turned profitable in 2015.
  • Today, with one single product, Food Empire is among the Top 5 players in Vietnam’s instant coffee mix industry based on volume share. It is also a Top 3 player based on value share.

Extensive network of sales representatives helps drive sales.

  • Café Pho is largely sold in sundry shops and markets, as general trade constitutes c.80% of the retail market in Vietnam. While the group uses third-party distributors to reach retailers, it employs 540 sales representatives across the country to bridge sales between distributors and retailers. These representatives visit the retailers on a weekly basis to ensure the retailers’ timely restocking. They also help direct the retailers’ shelf placements to ensure maximum visibility of Café Pho products.

High visibility of Café Pho increases its mind share.

  • During our visit, we noticed that Café Pho is widely available in the general trade. The product could be easily found in sundry shops or market stalls right next to each other (see Figure7 in attached PDF report). In addition, Café Pho is one of the few instant beverage products that focuses on selling in sachets aside from selling in bags and boxes (see Figures 3-4 in attached PDF report).
  • As Café Pho is a premium product with a higher price point, selling in sachets allows consumers with lower disposable income to buy at smaller quantity and lower cash outflows. Food Empire’s sales representatives also encourage retailers to hang strings of Café Pho sachets from a rod across the shop’s ceiling, which again raises the product’s visibility (see Figures 5-6 in attached PDF report).

Rolling out more products.

A look at Vietnam’s 3-in-1 coffee mix market

  • Refer to attached PDF report for more details.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-01-17
SGX Stock Analyst Report BUY MAINTAIN BUY 0.830 SAME 0.830