FOOD EMPIRE HOLDINGS LIMITED (SGX:F03)
Food Empire - 3Q20 Above Expectations; Maintain BUY
- Despite the resurgence of COVID-19 in Food Empire’s core markets, the group recorded a decent 3Q20 net profit of USD6.3m, (-20% y-o-y). The decline was largely due to FX as RUB and its related CIS currencies depreciated sharply towards the end of September. Excluding FX, 3Q recurring net profit of USD9.0m (+2% y-o-y) was above our expectation.
- Food Empire's 9M20 net profit of USD19.5m and recurring net profit of USD23.3m met 100% and 99% of our previous full-year forecasts. Maintain BUY with higher target price of S$0.80 from S$0.72, 38% upside and 3.4% yield.
The worst is over.
- While Food Empire (SGX:F03)'s revenues were down y-o-y across all the markets, it has shown strong sequential improvement from 2Q20.
- Management highlighted that demand for their instant coffee products has been stable. Barring strict national lockdowns that might result in operational and logistical issues, sales volume should remain fairly resilient despite the pandemic.
- Food Empire's 3Q earnings declined 6% q-o-q due to FX impact. Excluding FX, 3Q earnings amount was 87% higher than in 2Q.
Change in forecast and target price.
- We expect the Food Empire's full-year to end strongly and raised our forecast for FY20-22F recurring PATMI by 14%, 4% and 1%. We also raise our Food Empire's target price to S$0.80 pegged to 11x FY21F P/E as we roll over our valuation base year to FY21F.
- We have however lowered our target P/E from 12x to 11x due to volatility surrounding RUB and the related currencies of the Commonwealth of Independent States (CIS).
- Given that Food Empire is able to generate a fairly resilient set of earnings amidst the challenges posed by the pandemic, we expect it to maintain last year’s final and special dividends totalling 2 cents (Singapore), per share. This raises our expected dividend yield to 3.4%.
Moving into 2021, management continues to take a cautious stance on operations.
- In view of the challenging environment, we believe Food Empire would be focusing on maintaining decent earnings in FY21F. As a result, we expect the advertising & promotion (A&P) expenses to be kept low, while keeping revenue and market share stable.
- On the positive side, Food Empire's second India plant should commence production next year as the country lift its restriction for business travels to facilitate the commissioning of the plant.
- 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: Strict nationwide lockdowns that result in operational disruptions in RUB and related CIS currencies.
Juliana Cai
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-11-13
SGX Stock
Analyst Report
0.80
UP
0.750
