Company Update: Food Empire Holdings Ltd.
Company Update: 7 March 2024
Soaring to new heights
• Record FY23 earnings showcase strong consumer demand. Consumer demand stays resilient across Food Empire Holdings’ key markets despite ongoing geopolitical tensions worldwide, alongside a high interest rate environment. Demand for coffee and tea remained strong across company’s all key markets, seeing volume growth YoY. Russia saw a slight decline in revenue mainly due to the continued depreciation of the Russian Ruble against the US dollar.
• Special dividend. The company declares a final FY23 dividend of 5 Scents per share and a surprise special dividend of 5 Scents per share, indicating a forward yield of 7.14%.
• Going forward, we expect interest rate cuts are in sight in 2H24. The company should see a further decline in costs and expenses in FY24. We maintained an OUTPERFORM recommendation and raised our target price (TP) to S$1.65 (from $1.45 previously) due to better profitability as the company’s business model continues to drive growth.
FY23 financial results.
The company reported a record revenue of US$425.7mn for FY23, up 6.9% YoY, due mainly to higher volume and higher pricing from all the group’s core markets. The company saw a significant increase in revenue in Ukraine, Kazakhstan and CIS, and South Asia, attributed to higher contributions from the group’s coffee manufacturing plants in these markets.
Optimising product mix
The company still remains focused on optimising its product mix and reducing costs in 4Q23. For the full year, the company’s gross profit margin (GPM) rose to 33.2% in FY23, compared to 29.8% in FY22.
Valuation & Action
We maintain an OUTPERFORM recommendation and raise our TP to S$1.65, from S$1.45 previously, based on a blended valuation: Discounted Cash Flow (DCF), with a terminal growth rate of 2% and a WACC of 12%, as well as a comparable Multiples Valuation with an average industry price-to-sales multiple of 0.94x.
Risks
The company continues to be exposed to currency risk as it operates businesses 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 depreciate currencies such as the Ruble and Ukrainian hryvnia against the US dollar even further.
