Company Update: 23 August 2024
More capacity, more growth
- Continued strong growth in South-East Asia and South Asia. Food Empire Holdings saw a sustained increase in sales across its core markets in 1H24, showcasing a resilient consumer demand for the company’s products, which saw volume growth YoY, especially in the Southeast Asia and South Asia regions. The group continues to reap the benefits of its brand-building efforts in Vietnam, increasing its market share across the Vietnamese market. Demand for the group’s products in South Asia also remains strong amidst a coffee consumption boom in the region.
- Ramped up capacity in Malaysia. The group recently completed the expansion of its non-dairy creamer production facilities in Malaysia. Commercial production started on 1st April, boosting production of non-dairy creamer going forward. The plant will reach full production capacity over the next 24 to 36 months and will drive more growth for the group’s Southeast Asia region and translate into higher revenue for the group in the region.
- While the group continues to face headwinds such as higher coffee prices resulting in price disruptions, as well as a strong US dollar, demand continues to remain robust for the group’s products. We are optimistic on the group’s business going forward and keep an OUTPERFORM recommendation as well as an unchanged target price (TP) at S$1.35.
1H24 Financial Results.
Food Empire Holdings reported higher revenue of US$225.2mn for 1H24, up 13.6% YoY, compared to US$198.2mn in 1H23, led by strong growth in its South-East Asia and South Asia market, which saw a growth of 34.8% and 36.0% respectively.
Rising cost of raw materials
Coffee prices had been rising since the start of April and reached a high of US$247/lb before retracing back to the current level of around US$240/lb.
Valuation & Action
We maintain an OUTPERFORM recommendation and keep our TP unchanged at S$1.35, based on a blended valuation: Discounted Cash Flow (DCF), with a terminal growth rate of 2% and a WACC of 10.0%, as well as a comparable Multiples Valuation with an average industry price-to-sales multiple of 0.83x.
Risks
Food Empire is exposed to currency risk as it operates in several key markets, including Russia, Ukraine, Kazakhstan, Vietnam, India, and many more. The escalation of geopolitical tensions, such as the Russia-Ukraine war, would further depreciate currencies such as the Ruble and Ukrainian hryvnia against the US dollar.
