Maybank Securities analyst Jarick Seet has lowered his target price on Food Empire to $1.30 from $1.68 previously as he expects the higher coffee bean prices to impact the company’s margins in the short term.
Prices for coffee beans have risen in the past two month to a high of US$240 ($324.99) per pound, which is up 30%. As at Seet’s report dated May 7, coffee bean prices have tapered down to a growth of about 10%.
Despite the short-term headwinds, Seet expects Food Empire’s management to gradually raise its product prices, although this will impact its financial performance around six months later.
As a result, Seet has also lowered his patmi estimates for the FY2024 and FY2025 by 15%. His new target price is pegged to a lower FY2024 P/E of 10 times from 11 times before.
However, the analyst has kept his “buy” call on Food Empire as he sees its revenue growth to be intact, especially in Vietnam where the company has refocused a lot of its marketing efforts on, especially in FY2023.
“Going forward, its non-dairy creamer expansion should add about US$20 million - $50 million of revenues in the next one to two years after it ramps up,” adds Seet.
On the whole, the analyst likes Food Empire’s business model, which has proven to be “resilient”. The analyst also remains confident in its management’s ability to execute its strategies.
“We still believe Food Empire is undervalued at 8.6 times FY2024 P/E and that the company’s share buyback will likely continue. Management will likely also continue to reward shareholders with attractive dividends,” he says.
Shares in Food Empire closed 1 cent higher or 0.89% up at $1.13 on May 7.
