Food Empire - RHB Invest 2022-08-15: Proving Doubters Wrong; Reiterate BUY

FOOD EMPIRE HOLDINGS LIMITED (SGX:F03)

Food Empire - Proving Doubters Wrong; Reiterate BUY

Food Empire (SGX:F03)’s 1H22 PATMI surged 134.4% y-o-y to US$27m, while revenue grew by 18.5% y-o-y to US$177.4m despite the ongoing Russian-Ukraine conflict. This proves its doubters wrong, and validates its diversified revenue streams and resilient business model.

We raise our FY22F PATMI forecast for Food Empire by 30%, but lower our pegged target price P/E to 10x from 13x to account for the risk of the current Russia-Ukraine conflict.
Reiterate BUY recommendation on Food Empire with unchanged target price of S$0.95 offers 70% upside with ~5% FY22F yield.

Despite the ongoing conflict between Russia and Ukraine, demand from its Russia and Ukraine, Kazakhstan (all comprising a single segment) and Commonwealth of Independent States (CIS) markets remains firm, with revenue still rising by 4.8% and 17.2% y-o-y. In addition, revenue from South Asia continued to show solid growth, and rose 221.3% y-o-y to US$18.9m.
Food Empire has managed to diversify its revenue stream from Russia over the years, and revenue from other markets is now more than 50% of the total revenue (as of 1H22) – even while it continues to see growth from its Russian market.
That said, we believe that Food Empire’s business will remain resilient in its core markets – the demand for instant mix coffee remains sturdy, even with an ongoing war.
In fact, it gives Food Empire an advantage, as foreign competitors are leaving such markets – which would benefit the remaining players. These include Food Empire, which has the largest share of these markets

Food Empire's core net profit margin (NPM) improved to 11.2% in 1H22, from 8% in 1H11, after raising the prices of its products and mitigating actions taken to counter the rise in raw material as well as freight costs.
Management is happy with the NPM being around 10% levels, and will likely intensify marketing efforts to target revenue growth in specific markets going forward.

We believe that Food Empire’s 1H22 results should quash any doubts over the strength and diversification of its business. We expect it to continue doing well, despite the Russia-Ukraine war. The asset sale of its current industrial property (S$49.25m) should also boost its balance sheet and cash position.
In addition, management will start to buy back shares with the excess cash, once the asset sale is completed.
We believe Food Empire is a steal at these levels – Food Empire's Share Price is trading at just 6x FY22F P/E – and reiterate our BUY call. Our target price for Food Empire is now pegged to a conservative 10x, from 13x FY22F P/E, to account for operational risks in Russia.

Using our in-house proprietary methodology, we derive an ESG score of 3.0 for Food Empire, which is on par with the country median. As a result, we apply a 0% discount or premium to our target price.
See

Jarick Seet RHB Securities Research | https://www.rhbgroup.com/ 2022-08-15

SGX Stock Analyst Report BUY MAINTAIN BUY 0.950 SAME 0.950