• A certain resilience in Food Empire's instant coffee sales came through strongly during the Covid years. It showed up in its strong sales and profits.

USD’m

2022

2021

2020

2019

Revenue

398.4

320.0

273.0

288.6

Core profit

45.1

19.3

26.5

25.7


 • The 1H2023 results continued to be fine, with revenue up and core profit (ex-forex effects) too, on a year-on-year basis. With US$26.6 million in net profit in 1H23, Food Empire is forecast by Maybank and UOB KH to hit US$50 million for the full year.

FOREX EFFECT on Food Empire

(US’000)

1H23

1H22 

Forex gain

-

7,335

Forex loss

1,056

-

• Talking about forex, there has been a weakening of the Russian currency but, guess what, Food Empire will raise its selling prices to counter the effect on its USD revenue/profit. While Russia is a major market (35%) for Food Empire, other regions and businesses in aggregate (65%) surpass Russia in revenue contribution.

• Food Empire had raised its selling prices during the pandemic when supply chain disruptions led to higher operating costs.

(Hit by Western sanctions and a fall in its export revenues, the Russian economy is taking a hit, and the ruble is down to a 17-month low against the US dollar this week). 

• The two covering analysts for this stock have the same target prices after the release of 1H2023 results: 
 

Broker

Target price

PE (target)

Maybank KE

$1.36

11X 2023F

UOB KH

$1.36

10X 2024F

• For more, read on ....


maccoffee girl.AR12MacCoffee is one of the best-selling brands of Food Empire, especially in Russia.
Excerpts from Maybank KE report
Analyst:
Jarick Seet


Food Empire Holdings (FEH SP) -- Robust demand to continue

Maintain BUY with higher TP of SGD1.36


FEH reported a strong 1H23 with PATMI declining 1.6% to USD26.6m and forming 55% of our FY23 forecast.

FOOD EMPIRE

Share price: 
$1.05

Target: 
$1.36

This exceeded both MIBG/consensus estimates and came despite a forex YoY difference of –USD8m.

We expect strong demand to continue in core markets and we think Vietnam has also turned the corner and is now experiencing double-digit revenue growth.

Management plans to raise prices in its core markets by 7-15% from next month in two tranches due to the depreciation of the ruble in recent months.

As a result, we raise our FY23/24 PATMI estimates by 5% and increase our TP to SGD1.36 (+5%), pegged to 11x FY23E P/E.

 Strong performance in core markets to persist

 

As of 1H23, FEH reported strong revenue growth of 11.8% YoY to USD198.2m due to strong demand from its core markets.

Management plans to raise prices in its core markets by 7-15% from next month in two tranches due to the depreciation of the ruble in recent months.

Revenue from Russia, Ukraine and other CIS regions grew 23.6% and 20% YoY, respectively.

Demand from Vietnam has also reversed a decline and increased YoY due to the group’s marketing efforts.

Gross margins have also improved from 29.3% to 35.1%. Operating profit surged 67.7% YoY to USD34.6m.

PATMI declined 1.6% YoY mainly due to a FX difference of USD8m.

 Prices hikes to combat depreciating ruble

 

Management will likely be raising prices from next month by 7-15% and this will be done in two tranches, mainly to combat the impact of a weaker ruble which has depreciated significantly in the past few months.

We expect softness in revenue and gross profit in 3Q23E as these price increases typically take about 3-6 months to fully take effect but performance should pick up in 4Q23E.

 Proven resilient business

 

JarickSeet3.18Jarick Seet, analystFEH has proven its business model to be resilient and has shown a strong performance despite an ongoing war in its core markets. We remain confident in management’s execution capability and strong track record.

We also believe share-buybacks will continue which should provide good support to the share price. Maintain BUY.



Full report here.
UOB KH's report is here.

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