Food Empire shares are at a 52-week high after the last 2 particularly strong quarters of profit growth: It was 144% in 2Q and 35% in 3Q.

chart12.19Chart: Yahoo!The company is seeing its 9M2019 bottomline turn rosy on its decision to wind down its Myanmar business.

There, several years of effort by the company to make inroads has only brought red ink because of stiff competition and a depreciating local currency.

At the start of 2018, for example, 1,350 kyat could be exchanged for 1USD. At end-June 2019, it was 1,514 kyat.


tanwangcheow4.18Executive Chairman Tan Wang Cheow. File photo by Ong Chin Keet.It was a matter brought up at the FY2018 AGM held this year, given that Indochina revenue had grown substantially but the bottomline for that region was in the red.

Responding, executive chairman Tan Wang Cheow said, basically, Vietnam was doing great in sales and profit (US$3 million) but Myanmar suffered a loss of approximately US$4 million. (See:
)

While Vietnam suffered losses for several years before taking off, Myanmar didn't look like it would be the next success.

By pulling out, Food Empire’s 9M2019 selling and marketing expenses fell US$4.3 million, or 11.7% year-on-year.

Net profit after tax -- contributed by key markets for its 3-in-1 coffee products such as Russia and Ukraine -- rose 37.9% to US$20.9  million from US$15.1 million.

The 9M2019 net margin has notably risen from 7.1% to 9.7% while the gross margin has stayed pretty much where it has been in recent years at approximately 40%.

Given this backdrop, one can appreciate that: 

SudeepNair219CEO Sudeep Nair currently owns 60.95 million shares of Food Empire, or a 11.37% stake.
NextInsight file photo.
• CEO Sudeep Nair coughed up $435,000 to exercise 1.3 million stock options at 33.5 cents each in Sept 2019.

In addition, in Nov 2019, he bought 1,340,700 shares in the open market for S$750,657.93, ie at 56 cents on average.

In the same month, he made another purchse of 230,800 shares for S$138,226.12, ie at 60 cents on average.

• Food Empire bought back its shares for the first time, in a long time.

In Sept-Dec 2019, it bought back 424,500 shares at an average price of nearly 52 cents.


9M2019 net profit attributable to equity shareholders reached US$21.1 million, up 37.4% y-o-y.

It's a figure that approximates recurring profit as so far in 9M2019, Food Empire has had an unusually calm overall forex situation, reporting a minor US$125,000 in forex loss.

Stock price 

64 c

52-week range

49 - 65 c

PE (ttm)

14.6X

Market cap

S$343 m

Shares outstanding

534 m

Dividend 
yield 
(ttm)

1.1%

1-yr return

18%

Source: Yahoo!

(Forex volatility is typically the key non-recurring feature of the company's income).

RHB analyst Juliana Cai forecasts US$25.3 million in recurring net profit for the full year.

That would be a 17% growth y-o-y over the US$21.6 million of FY2018, after a forex loss of US$3.5 million in FY2018 is excluded. 

If the US$25.3 million turns out also to be the net profit attributable to equity shareholders, then it would be 40% higher y-o-y over the US$18.1 million achieved in 2018.

But don't get the idea that, after Myanmar, Food Empire will not try other emerging markets. In fact, it is already dipping its toes into the Phillipines. 

In the meantime, its multi-pronged diversification strategy is manifesting itself in the form of a second coffee plant in India which has just been completed at a cost of US$50 million, and will become operational in 2Q2020.


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