KGI Research has kept its “outperform” call on Food Empire Holdings F03 after the company reported a record set of earnings for the FY2023 ended Dec 31, 2023. Analyst Tang Kai Jie has also given the company a higher target price of $1.65 from $1.45 previously due to the better profitability.
See the rest of the analysts' reports and raised target prices here
In his report dated March 7, Tang notes several positives including the resilient consumer demand for the company’s products despite the geopolitical tensions and the high interest rate environment.
Other pluses are Food Empire’s initiatives to optimise its product mix and to reduce its costs; its FY2023 dividend of a total of 10 cents, which indicates a forward yield of 7.14%; strong share buybacks, which the company intends to provide shareholders with in FY2024; and the stable foreign exchange (forex) rates.
In addition, the company maintains a strong cash position, showcasing its ability to generate cash flow to fund its future expansions. “Its strong supply chain and market presence across several markets also put it at a competitive advantage against its peers,” says Tang.
“The company consistently seeks opportunities for market expansion, with a primary emphasis on acquisitions. Additionally, there are plans to build more factories within existing markets to enhance its business-to-business (B2B) business. Further updates on expansion into new markets or the construction of additional factories will be communicated to investors by the management once these plans are confirmed,” he adds.
Meanwhile, one downside Tang has identified is the company’s currency risk as it operates its businesses in several key markets including Russia, Ukraine, Kazakhstan, Vietnam, India, and many more.
“The escalation of geopolitical tensions, such as the Russia-Ukraine war, would depreciate currencies such as the Ruble and Ukrainian hryvnia against the US dollar even further,” Tang writes.
That said, the analyst remains upbeat on Food Empire’s outlook, seeing interest rate cuts likely to happen in the 2H2024. When the rate cuts happen, the company should see a further decline in costs and expenses in FY2024.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
Demand is also expected to remain healthy across its key markets; the company would also enjoy continued growth with its expansion plans anticipated to drive more sales.
In the coming year, Food Empire, after finalising its non-dairy creamer expansion in Malaysia, expects to commence commercial production in the next few months pending final approval from the Malaysian government.
“This expansion aims to boost non-dairy creamer sales to external parties in the region. Marketing efforts have already commenced to identify potential customers, and the group foresees the plant reaching 30% to 40% capacity by year-end,” says Tang.
His new discounted cash flow (DCF)-based target price is based on a terminal growth rate of 2% and a weighted average cost of capital (WACC) of 12%, as well as a comparable multiples valuation with an average industry price-to-sales multiple of 0.94 times.
As at 11.50am, shares in Food Empire are trading 1 cent higher or 0.71% up at $1.41.
