FOOD EMPIRE HOLDINGS LIMITED (SGX:F03)
Food Empire - One Shot Of Caffeine, Please; Keep BUY
- Food Empire has been performing share buy-backs in recent weeks. We believe this signals management’s confidence for 2H20 and that it deems the current valuation as cheap.
- Given that Food Empire is poised to deliver earnings recovery in 3Q on reopening economies and ASP increases, we believe the current Food Empire share price offers a good entry opportunity for investors looking to capture potential upsides.
Food Empire's earnings to recover from 2Q20’s low, driven by higher sales.
- Sales in Food Empire (SGX:F03)’s biggest market – Russia – should pick up in 3Q, as sales volumes improve amid the easing of national lockdowns. The group has also implemented ASP increases across 2Q-3Q, which should help mitigate some of the negative impacts from the RUB’s depreciation.
- While Russia has seen a spike in new COVID-19 cases since end September, we note that the Russian Government does not plan to re-impose national lockdowns. Without a severe disruption, we expect Food Empire’s sales to remain resilient in 4Q.
- In Vietnam – the group’s second-largest market – there was some resurgence in COVID-19 cases during the July-August period. Fortunately, the contagion was confined around the Da Nang area and a partial lockdown was implemented for the region. We understand from management that this should not have a major impact on its sales in Vietnam.
Tighter cost controls.
- Food Empire’s G&A costs have reduced by USD2m (10% y-o-y) in 1H20. We expect such costs to remain low in 2H20 on the group’s cost-containment initiatives and lower travelling costs amidst border restrictions.
Key risk lies in FX.
- The RUB has depreciated c.10% across 3Q20. We project a FX loss of c.USD3m in 3Q20 – similar to 1Q20’s amount. That said, our forecasts remain unchanged, as we believe this could be offset by the recovery in sales. However, a further depreciation of the RUB from current levels could affect 4Q and FY21’s projections.
Food Empire has been doing share buy-backs at the current price of c.SGD0.60.
- We believe this signals management’s confidence for 2H20. See latest Share Buy-back of SGX listed companies. At this price level, we concur that the valuations of c.10x and 8.4x for FY20F and FY21F P/Es are very attractive for a consumer staples group that should generate stable earnings despite these challenging times.
- We maintain our BUY call and SGD0.75 Target Price for Food Empire.
- See Food Empire Share Price; Food Empire Target Price; Food Empire Analyst Reports; Food Empire Dividend History; Food Empire Announcements; Food Empire Latest News.
- Key risks: Negative movements in the RUB and other Commonwealth of Independent States’ (CIS) currencies and rising coffee bean prices.
Juliana Cai
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-10-15
SGX Stock
Analyst Report
0.750
SAME
0.750
