RHB Group Research analyst Jarick Seet has kept &ldquo buy&rdquo on Food Empire with the same target price of $1.23.

 

In his report dated Oct 5, Seet sees the company&rsquo s share buybacks as a &ldquo strong vote of confidence&rdquo from its management.

 

On Sept 28, 29 and 30, Food Empire&rsquo s management purchased a total of 340,000 shares, at 77.26 cents apiece, 77.89 cents apiece and 78.78 cents apiece respectively.

 

The company has also marked revenue growth of 12.5% y-o-y in the 1HFY2021, which is a &ldquo strong showing&rdquo by historical standards.

 

Sales to its core market in Russia grew 12.8% y-o-y while sales to other markets in Southeast Asia and South Asia grew by 13.2% y-o-y and 91% y-o-y.

 

To this end, Seet also expects Food Empire&rsquo s market share in Vietnam, India and Malaysia, as well as its market share in Russia and Ukraine to continue to grow, as the group introduces more new products into these regions.

 

That said, the company&rsquo s margins in 1HFY2021 were mainly impacted by the surge in freight rates and raw material prices, which should be a &ldquo temporary blip&rdquo , according to Seet.

&ldquo Management will likely raise average selling prices (ASPs) to mitigate the rise in margins &ndash it aims to raise ASPs by 10% each time in two batches, from end-3QFY2021 onwards,&rdquo says Seet.

 

&ldquo The group has also begun sourcing from other local supply chains for raw materials, which should save on freight costs and pare down overall cost of goods sold (COGS). As a result, we think the increase in costs is only temporary, and margins should normalise once global vaccination rates increase and Covid-19 becomes endemic,&rdquo he adds.

 

On the back of the temporary surge in COGS, Seet has cut his FY2021 PATMI estimates by 14%.

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However, his target price remains at $1.23, which is pegged at 15 times FY2022 price-to-earnings (P/E) to reflect a &ldquo more accurate PATMI on a normalised basis&rdquo .

 

&ldquo We remain confident on Food Empire Holdings&rsquo prospects, and believe that it remains an attractive target for privatisation or acquisition, due to its attractive valuation,&rdquo he says.

 

RHB Group Research analyst Jarick Seet has kept &ldquo buy&rdquo on Food Empire with a lower target price of $1.23 from $1.27 as he rolls his price-to-earnings (P/E) to 15 times FY2022.

 

This, he says, is to reflect a more accurate PATMI on a normalised basis.

He has also lowered his PATMI estimates for the FY2021 by 14% due to the surge in the cost of goods sold (COGS), which Seet believes, is temporary.

 

&ldquo Management will likely start raising average selling prices (ASPs) by 10% each time for two periods, to mitigate the margin drop &ndash it has already sourced for a local supply chain to avoid freight charges for some of its raw materials,&rdquo Seet writes in an Aug 16 report.

 

On Aug 13, Food Empire saw earnings decline by 13.9% y-o-y to US$11.5 million ($15.6 million) for the 1HFY2021 ended June due to higher cost of sales.

 

Revenue, on the other hand, grew by 12.5% y-o-y to US$149.6 million, which Seet sees as &ldquo very encouraging&rdquo .

 

The higher figure is also a &ldquo strong showing by historical standards&rdquo , he says.

Food Empire&rsquo s earnings per share (EPS) for the six-month period stood at 2.11 US cents from 2.49 US cents in the same period before on a fully diluted basis.

 

&ldquo We expect its market share in Vietnam, India, Malaysia as well as Russia and Ukraine to continue to increase as the group launches more products into these regions,&rdquo he adds.

 

In addition, the share buybacks conducted by Food Empire&rsquo s management is likely to continue as management deems the company deeply undervalued.

 

&ldquo We share the view and believe that management will likely resume the buybacks once the blackout period is lifted,&rdquo says Seet.

 

At 11.4 times FY2021 P/E, Food Empire is among the cheapest consumer staples compared to its peers that&rsquo re trading at 20 times to 30 times P/E.

 

&ldquo We remain confident on Food Empire&rsquo s prospects, and think that it remains an attractive target for privatisation or take over due to its attractive valuation,&rdquo he says.

Felicia Tan  Published on Mon, May 17, 2021 / 12:29 PM GMT+8 / Updated 8 hours ago

RHB Group Research analyst Jarick Seet has kept &ldquo buy&rdquo on Food Empire with the same target price of $1.27 after Food Empire reported its 1QFY2021 figures on May 11.
For the quarter ended March, earnings increased by 3.9% y-o-y to US$6.8 million ($9.1 million) while revenue grew 3.4% y-o-y to US$76.8 million.

The better performance comes despite a record 1QFY2020 and amid lower margins due to higher freight and raw material costs during the period.

However, Seet says he expects Food Empire&rsquo s margins &ldquo to improve and revenue to grow further in the quarters ahead, as it was impacted by global lockdowns in 2QFY2020-3QFY2020. Management can also widen margins by its raising ASPs, if needed,&rdquo he writes in a May 14 report To him, he expects demand to remain resilient and grow in the FY2021, especially in the second and third quarters, as the company has since learnt to solve previous operational and logistics issues that led to a temporary decrease in its sales volume.
To this end, Seet says the 1QFY2021 is likely to be Food Empire&rsquo s weakest quarter for the year, even though it yielded numbers that outperformed his estimates.
&ldquo Going forward, management said that marketing and administrative costs are likely to remain low this year, even though revenue should rebound further, thereby allowing for margin expansion,&rdquo he says.
With the increase in freight and raw material costs in the 1QFY2021, Seet notes that the company&rsquo s management has implemented measures such as further cost reductions and a targeted marketing strategy to stem the growth of these metrics.
&ldquo Food Empire is confident on charting higher revenue growth this year, on the back of strong demand for its products &ndash even in new markets like Vietnam and Southeast Asia,&rdquo he says.
&ldquo It is also reviewing the option of increasing average selling prices (ASPs) in strong markets like Russia and Ukraine, and will raise prices from 3QFY2021 onwards if necessary, or if competitors hike up their own selling prices,&rdquo he adds. &ldquo Management expects freight and raw material prices to stabilise towards the end of 3QFY2021, which should further strengthen margins.&rdquo
Looking ahead, Seet remains &ldquo positive&rdquo on the counter, as he sees the potential for the company to grow further.
For instance, he is not ruling out the possibility of privatisation given its undervalued position.

&ldquo Management has also been aggressively buying back shares, with the last exercise executed at 94 cents per unit,&rdquo he says. &ldquo We believe the share buybacks were done to support its stock price,&rdquo he adds.
With a market valuation of 10 times FY2021 price-to-earnings (P/E), Seet says Food Empire is among the cheapest consumer staples counters with a proven track record, compared to its peers that are trading at 20 to 30 times P/E.

Food Empire Holdings has reported earnings of US$6.8 million for its 1QFY21, up 3.9% y-o-y. Revenue in the same period was up 3.4% to US$76.8 million, led by stronger demand for its products in southeast Asia.
The company also suffered lower forex losses and incurred lower sales related expenses. However, raw materials and transportation costs increased.

Food Empire notes that its main market, Russia, continues to suffer from the pandemic although the situation is &ldquo generally under control&rdquo and it &ldquo has not faced any major interruptions&rdquo in its operations in 1Q2021. 

However, since April 2021, Ukraine, is other key market, is seeing the peak of its third Covid-19 wave.

&ldquo Despite the uncertain and volatile operating conditions, the Board is confident that Group&rsquo s businesses will remain resilient, backed by an experienced management team and a healthy balance sheet,&rdquo the company says.


As at March 31, cash and cash equivalents stood at US$70.3 million and it can fulfil its near-term obligations, meet its debt covenants and service its debt obligations.