CGS International analyst William Tng has resumed his coverage of Food Empire Holdings with an “add” call. Tng’s last report on the counter was in May 2024.
In May 2024, Food Empire announced its plans to invest US$30 million ($41.1 million) to build a new coffee-mix production facility in Kazakhstan. The plant will occupy half of a 10-hectare plot, leaving room for future expansion. The plant is targeted to be ready for production by the end of 2025, Tng notes.
Food Empire also announced, in September 2024, that it will invest US$80 million in Vietnam’s Binh Dinh province, to construct its second freeze-dried soluble coffee manufacturing facility.
On Nov 1, 2024, the company completed its strategic partnership with private equity fund manager Ikhlas Capital to expand its businesses in Southeast Asia and South Asia. Food Empire Holdings issued US$40 million worth of five-year redeemable exchangeable notes (REN) at 5.5% annual interest. The REN can be converted into FEH shares at $1.09 apiece after Nov 1, 2026.
In his Jan 6 report, the analyst says he continues to like the counter for its potential to grow its operations in Vietnam into a new major contributor to its revenue. He also likes the company for its potential to grow its food ingredients business.
Referring to Food Empire’s results for the 9MFY2024 ended Sept 30, 2024, Tng notes that Southeast Asia and South Asia were the company’s fastest growing segments at 30.6% y-o-y and 28.3% y-o-y respectively.
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He adds that Southeast Asia’s revenue, which reached US$94.8 million in 9MFY2024, is likely to exceed Russia’s contribution to the company’s total revenue over FY2025 to FY2026.
Despite his “add” call, Tng has lowered his target price to $1.43 from $1.73 previously. The analyst has lowered his earnings per share (EPS) forecasts by 4.67%, 17.24% and 16.90% for FY2024, FY2025 and FY2026 as he raises his operating expense assumptions with Food Empire increasing its marketing spend in its growing Vietnam market.
The lowered EPS forecasts also factors in US$2.2 million in additional interest expenses from the REN, says Tng.
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His valuation basis remains unchanged at 11.2 times FY2025 P/E or 1 standard deviation (s.d.) above its five-year mean from FY2019 to FY2023.
As at 12.14pm, shares in Food Empire are trading flat at 98.5 cents.
