FOOD EMPIRE HOLDINGS LIMITED (SGX:F03)
Food Empire - 1H21 Below Expectations Due To Costs; Price Increase Should Improve Earnings
- Food Empire’s 1H21 net profit of US$11.5m (-13.2% y-o-y) is below expectation, forming 37% of our full-year estimate. Margins came under pressure due to high commodity prices and record-high ocean freight rates. We believe earnings should improve via price increases and normalisation of costs.
- All markets recorded sales growth, with double-digit growth in its two largest markets, Russia and Southeast Asia. This continues to reflect Food Empire’s strong brand power.
- Maintain BUY rating on Food Empire.
Results below expectations due to higher costs which led to margin pressure.
- Food Empire (SGX:F03)’s 1H21 net profit of US$11.5m (-13.2% y-o-y) is below expectation, accounting for 37% of our full-year estimates. The miss was mainly due to lower margin as a result of:
- higher commodity prices,
- record-high ocean freight rates,
- a shortage of shipping container slots which resulted in supply chain delays, and
- higher depreciation expenses arising from commencement of the group’s new freeze-dry coffee plant in India.
- Gross margin fell 7.7ppt to 32.2%.
Revenue growth across all markets, especially the two largest ones.
- Revenue for 1H21 grew 12.5% y-o-y as most markets recovered from a harsh lockdown last year. Food Empire’s two largest markets reported encouraging double-digit sales growth in 1H21 - Russia (+12.8%) and Southeast Asia (+13.2%). The third largest market, which consists Ukraine, Kazakhstan and CIS, also recorded 4.3% y-o-y revenue growth.
Expect cost pressures to be overcome by price increases and normalisation of costs.
- Given its strong brand power and market-leading position, Food Empire will be reduce with higher vaccination rates across the world.
STOCK IMPACT
- Growing target. Food Empire trades at 10x 2022F takeover offer or privatisation. Besides, in the past, SGX-listed peers including Super Group and Viz Branz were acquired and privatised at significantly higher valuations of 30.0x and 16.4x respectively.
EARNINGS REVISION
- We reduce our 2021 earnings forecast by 20% as we reduce our gross margin forecast by 2.2ppt to 36.1%. This is to account for the higher raw material and logistics costs as a result of COVID-19 disruption. However, we believe this situation is temporary in nature. Hence, we only reduce our 2022 and 2023 earnings estimates by 6% after reducing our gross margin assumption by around 1ppt to 38%.
VALUATION & RECOMMENDATION
- Maintain BUY rating on Food Empire with an unchanged base year to 2022.
- See
John Cheong
UOB Kay Hian Research
|
Clement Ho
UOB Kay Hian
|
https://research.uobkayhian.com/
2021-09-02
SGX Stock
Analyst Report
1.300
SAME
1.300
