FOOD Empire : F03 +5.05% posted a 50.9 per cent rise in net profit after tax to US$13.8 million for its first quarter ended Mar 31, from US$9.2 million the year before.

 

Revenue for Q1 rose 24.2 per cent to US$102.6 million, from US$82.6 million a year earlier, on stronger demand for the company&rsquo s branded products, the food and beverage manufacturer said in a business update on Thursday (May 11).

 

The higher year-on-year revenue came also from lower sales recorded in the first quarter of 2022, following Russia&rsquo s attack on Ukraine. The company lists these two countries as being among the key markets for its products Food Empire also has manufacturing facilities in these two places.

 

Revenue from the group&rsquo s Russia segment was up 44 per cent to US$38 million, from US$26.4 million previously its Ukraine, Kazakhstan and the Commonwealth of Independent States (CIS, comprising former republics of the Soviet Union) segment rose 52.2 per cent to US$25.5 million from US$16.8 million.

 

South Asia contributed US$10.9 million in revenue in Q1, 29.6 per cent higher than the S$8.4 million a year ago.

 

In contrast, revenue generated from South-east Asia fell 10.4 per cent to US$22.1 million, from US$24.7 million a year earlier. Food Empire attributed this to continued post-pandemic normalisation in its Vietnam market, as well as lower output from its non-dairy creamer factory in Malaysia, due to one-off supply chain issues.

 

Revenue declined in the group&rsquo s other segments by 4.3 per cent to US$6.1 million, from US$6.4 million in the preceding year-ago period.

 

Giving an update on its business outlook, the company said its Russia, Ukraine, Kazakhstan and CIS segments have been performing well, and it will continue to invest in its brands to gain market share.

 

At the same time, given the uncertain geopolitical situation in the region, it will continue to monitor the economic and political developments and &ldquo implement strategies to mitigate the effects of these developments&rdquo .

 

For its South-east Asia segment, Food Empire will spend more on advertising and promotion in the Vietnam market to achieve higher revenue.

 

As for its South Asia segment, the group&rsquo s spray-dried and freeze-dried coffee plants have been &ldquo operating at optimal capacity to meet international demand that remains robust&rdquo . It expects to benefit from favourable pricing for these products. Demand continues to exceed supply.

Maybank Securities is keeping its &ldquo buy&rdquo recommendation on coffee manufacturer and distributor Food Empire F03 0.00% with an unchanged target price of $1.29.

 

Ahead of the group&rsquo s 1QFY2023 ended March results (to be reported after market hours on May 12), analysts Jarick Seet and Eric Ong expect revenue to increase by 5% y-o-y to US$86.7 million and net profit after tax (NPAT) to gain 22% y-o-y to US$11.2 million. This is especially given that the Russia-Ukraine war started in 1Q2022 and hurt the group&rsquo s operations.

 

&ldquo We expect demand to remain strong in Russia and the CIS region and strong growth from Vietnam. Spray dry and new freeze dry coffee plants in India continue to operate at full capacity but should yield higher margins due to cost reductions on freight cost normalisation,&rdquo say Seet and Ong.

 

&ldquo Corporate share buy-backs have also been consistent and will likely resume after the blackout period given it has just renewed its mandate,&rdquo say the analysts.

 

The group has been buying back shares from the open market at higher prices than before of over $1.01. The analysts expect this to continue as management concur that the company is deeply undervalued and remains confident of its outlook.

 

&ldquo We also expect interim dividends to be a possibility in the near future due to its strong cash flow generation and strong balance sheet,&rdquo say Seet and Ong.

 

At this point, shares in Food Empire are trading at an undemanding 8.6x FY2023 P/E, which the analysts believe is still a steep discount despite its strong recent share price performance, compared to the valuations of its private and listed global peers.

 

&ldquo As such, we think that it could be an attractive target for bigger competitors given its strong presence in Russia and Vietnam,&rdquo say the analysts.