Food Empire - RHB Invest 2021-05-05: Undervalued 3-in-1 Coffee Mix


Food Empire - Undervalued 3-in-1 Coffee Mix

  • Food Empire is significantly undervalued – trading at 11x FY21F P/E vs peers’ 20- 30x;
  • Strong performance expected for FY21F;
  • Aggressive share buybacks.

Food Empire - Company Profile

  • Food Empire (SGX:F03) is a global food and beverage company that manufactures and markets instant beverages, frozen convenience food, confectionery and snack food. The company’s products can be found in over 50 countries across Asia, Africa, Middle East, North America and Europe.

Food Empire - Investment Highlights

The worst is over.

  • While revenue was down y-o-y, across all the markets, strong sequential improvement was seen from 2Q20. Management highlighted that demand for instant coffee products has been stable. It noted that previous strict national lockdowns had resulted in operational and logistical issues, causing sales volume to decrease temporarily – Food Empire has since learnt how to solve these issues, and is unlikely to face such issues going forward.
  • We expect demand to remain resilient, and increase in FY21F. Management has also revealed that marketing and administrative costs should remain low for FY21F despite revenue likely rebounding further.

A strong rebound in FY21F.

  • We expect a much stronger FY21F. Our S$1.27 target price for Food Empire is pegged to a 15x FY21F P/E, as its local and regional staples peers are trading at a significant premium of 20-30x. The RUB appreciated at the end of Nov 2020, and this will be beneficial for the group.
  • Management declared a record FY20 dividend of 2.2 cents. We expect FY21F final dividend to exceed that of last year’s dividend.

Top Pick for consumer stocks in Singapore.

  • At 11x FY21F P/E, Food Empire is among the cheapest consumer staples with a proven track record, with its peers trading at 20-30x P/E. With the company being a market leader in Russia and Ukraine, we remain bullish and maintain our BUY call.
  • Privatisation may be a possibility, given Food Empire's undervalued status.
  • Food Empire's management aggressively conducted company share buybacks in Dec 2020 and Jan 2021. It recently resumed another round with the latest buyback at S$0.94 as management thinks that the share price is deeply undervalued vs peers and acquisition targets. We believe that management will likely continue its share buyback purchases.

Food Empire - Company Report Card

Latest results.

  • Food Empire's PATMI grew by 2.6% y-o-y in FY20 to S$26.8m despite a 5.4% y-o-y drop in revenue to US$273m. The decrease was in revenue was due to lockdown constraints and logistic issues encountered as a result of the pandemic.

Balance sheet/cash flow.

  • As at end-FY20, Food Empire’s net cash position was at a healthy S$18m. We expect its net cash position to rise further as it continues to generate positive cash flow.


  • Food Empire’s ROE has remained steadily between 10-15% and we expect this trend to continue.


  • Food Empire continues to reward shareholders with attractive and sustainable dividends representing a yield of 2.3%


  • Tan WangCheow has been providing leadership to the Board of Directors since Apr 2000. He is Food Empire’s founder and has been instrumental in guiding its business, including taking the company public in 2000.
  • As the Executive Chairman, Tan is responsible for achieving the company's long-term goals. His role includes providing strategic leadership and exploring business opportunities. Sudeep Nair has been serving the Board as an Executive Director since Jul 2005. In October 2012, he was appointed Group CEO and is responsible for Food Empire's growth strategy and overall day-to-day operations. His role includes geographical expansion of business, as well as identifying new business and M&A opportunities.

Food Empire - Investment Case

Top Pick for consumer stocks in Singapore.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-05-05
SGX Stock Analyst Report BUY MAINTAIN BUY 1.27 SAME 1.27