Food Empire - UOB Kay Hian 2021-11-15: 3Q21 Below Expectations Due To Costs; Price Increases Will Improve Earnings

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FOOD EMPIRE HOLDINGS LIMITED (SGX:F03)

Food Empire - 3Q21 Below Expectations Due To Costs; Price Increases Will Improve Earnings

• Food Empire's 3Q21 net profit of US$3m (-51% y-o-y / -22% q-o-q) was below expectation, 9M21 formed 57% of our full-year estimates. Margin is still under pressure due to high commodities prices and ocean freight rates.
• We believe earnings should improve via price increases and normalisation of costs. All markets except Southeast Asia recorded sales growth, with double-digit growth in the largest market, Russia. This continues to reflect the strong brand strength of Food Empire.

Food Empire's 3Q21 results below expectations due to higher costs which led to margin pressure.

• Food Empire (SGX:F03)’s 3Q21 net profit of US$3.1m (-51% y-o-y / -22% q-o-q) was below expectation, with 9M21 forming 57% of our full-year estimates. The miss was mainly due to lower margin as a result of higher commodities prices, record-high ocean freight rates, coupled with a shortage of shipping container slots resulting in supply chain delays and higher depreciation expenses arising from the commencement of the group’s new freeze dry coffee plant in India. Gross margin fell 4.9ppt to 25.7%.
• Revenue growth across all markets, except Southeast Asia due to a temporary lockdown. Revenue for 3Q21 grew 8.8% y-o-y mainly driven by Russia and South-Asia market. The largest market, Russia, reported encouraging revenue growth of 15.1%, while the second largest market, Southeast Asia recorded a 5.3% decline in revenue due to a temporary lockdown in Vietnam. The third largest market which consists of Ukraine, Kazakhstan and Commonwealth of Independent States (CIS) also recorded a 5.3% y-o-y revenue growth.

Expect cost pressures to be overcome via price increases and normalisation of costs.

• Given the strong brand strength and leading market position of Food Empire, it point and consumer-staple nature of its products, the products are relatively price inelastic. As such, sales volumes are more sheltered from an economic slowdown, in our view.

Compelling valuation; potential takeover target.

• Food Empire currently trades at 10x 2022F P/E vs peers’ average of 18x. In view of its resilient core on 16.6x 2022 long-term historical average (excluding outliers).
• See
  • Food Empire's Share Price,
  • Food Empire's Target Price,
  • Food Empire's Analyst Reports,
  • Food Empire's Dividend History,
  • Food Empire's Announcements,
  • Food Empire's Latest News.

John Cheong UOB Kay Hian Research | Clement Ho UOB Kay Hian | https://research.uobkayhian.com/ 2021-11-15

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