KGI Securities analyst Tang Kai Jie has maintained “overweight” on Food Empire Holdings F03 with a target price of $1.35.
This is despite the company facing several headwinds in the near term, namely rising cost of raw materials and strong US dollar.
Tang notes that coffee prices had been rising since the start of April, reaching a high of US$240 per pound. The current level remains elevated, attributed to weather concerns in key coffee-producing regions, such as a forecast of near-freezing temperatures in the near future which may harm the supply of coffee.
“Prices of coffee have gone up significantly compared to 1HFY2023, where coffee prices averaged around US$175 per pound. This increase in coffee prices will continue to bring about a higher cost of production for Food Empire.
“Furthermore, the increased prices have also resulted in a price disruption of goods as retailers rebalance their inventories to maximise their profits. The company is gradually adjusting its selling prices, passing higher costs on to customers to maintain profit margins,” Tang says.
Meanwhile, the prolonged high interest rate environment has strengthened the US dollar, compared to local currencies in Food Empire’s key market. The Russian Ruble continued to depreciate against the US dollar compared to 1HFY2023, resulting in a lower y-o-y revenue growth rate for the Russian market after the foreign exchange conversion.
Against this backdrop, Food Empire continued strong growth in Southeast Asia and South Asia, Tang points out. The company saw a sustained increase in sales across its core markets in 1HFY2024 — showcasing a resilient consumer demand for its products, which saw volume growth y-o-y.
Food Empire also continues to reap the benefits of its brand-building efforts in Vietnam, increasing its market share across the Vietnamese market.
The company has recently completed the expansion of its non-dairy creamer production facilities in Malaysia, KGI highlights. Commercial production started on April 1, boosting production of non-dairy creamer going forward.
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“The plant will reach full production capacity over the next 24 to 36 months and will drive more growth for the group’s Southeast Asia region and translate into higher revenue for the group in the region,” says Tang.
As at 3.34pm, shares in Food Empire are trading 1.5 cents lower or 1.5% down at 99.5 cents.
