Jarick Seet of Maybank Securities has initiated coverage on Food Empire with a “buy” call and $1.20 target price, citing the instant beverage maker’s cheap valuations, prospects of a special dividend, and a chance that it is a takeover target.
Seet notes that Food Empire trades at just 7.4x core FY22 earnings, nearly a quarter that of global peer average’s 27x. His target price of $1.20 is pegged to 11x earnings.
“We think Food Empire’s business model has shown its resilience and should continue to enjoy decent growth going forward,” writes Seet in his Feb 13 report.
The war between Ukraine and Russia – both of which are key Food Empire markets – has not hurt the company’s earnings.
For its 9MFY2022 ended Sept, the company managed to grow its revenue by 27% y-o-y to US$286 million. Besides higher sales, the company enjoyed better margins too.
“A ceasefire or the end of the conflict could result in a major stock re-rating, in our view. While Food Empire not subject to sanctions, its valuation took a huge hit when war broke out and could recover sharply on a truce, we believe,” says Seet.
For the coming FY2022, Food Empire is likely to give a special dividend, drawing partly from the proceeds of the sale of a building, says Seet, who is forecasting a total FY2022 distribution of 4 cents, which translates into a yield of more than 5%.
Seet also observes that Food Empire has been buying back shares at as high as 82 cents, with some 5.95 million bought back to date.
Citing how Food Empire is trading at just 7.4x core earnings, a “steep discount” off both listed and privately held peers, Seet believes that the company is an attractive acquisition target by the bigger players, eyeing its existing presence in Russia and Vietnam.
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Super Coffee, which was another Singapore-listed instant beverage maker, was taken over in 2017 by Netherlands-based Jacobs Douwe Egberts for $1.35 billion, which implies a valuation of 30x.
Separately, Food Empire, in an after-market announcement, says that earnings for FY2022 is likely to be “substantially” higher versus the preceding year.
“The substantial increase in the group’s profit after tax for FY2022 was mainly attributable to better operating profit and one-off gain from the disposal of non-core asset,” says Food Empire, without referring directly to the sale of the building.
The company expects to release its earnings on or around Feb 27.
Food Empire shares closed Feb 13 at 78 cents, up 1.31% for the day.
