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Felicia Tan Published on Tue, Sep 07, 2021

UOB Kay Hian analysts John Cheong and Clement Ho have kept “buy” on Food Empire Holdings with an unchanged target price of $1.30 in a Sept 2 report.

The estimate comes as the company reported net profit of US$11.5 million ($15.2 million) in the 1HFY2021 ended June on Aug 13.

The figure stood below the analysts’ expectations at 37% of their FY2021 estimates due to margin pressures on high commodity prices and record-high ocean freight rates.

That said, the company saw revenue growth across all of its markets, especially two of its largest markets, Russia and Southeast Asia.

Moving forward, Food Empire Holdings should be able to pass on the increased costs of raw materials and logistics gradually due to its strong branding power and market-leading position.

To the analysts, Food Empire Holdings has a compelling valuation as it is currently trading at 10 times FY2022 price-to-earnings (P/E) compared to its peers’ average of 18 times.

“In view of its resilient core earnings amid a challenging environment, leading position in its core markets in Eastern Europe and growing presence in its second largest market, Vietnam, we believe the valuation gap with its peers will narrow,” they write.

On the back of higher raw material and logistics costs however, Cheong and Ho have lowered their earnings forecast for the FY2021 by 20%.

They have also reduced their gross margin forecast by 2.2 percentage points to 36.1%.

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That said, the situation is “temporary in nature,” they note, which is why they have reduced their earnings estimates for the FY2022 and FY2023 by 6% after lowering their gross margin assumption by 1 percentage point to 38%.

Shares in Food Empire closed flat at 78 cents on Sept 7, with an FY21 P/B of 1.3 times and a dividend yield of 2.4%.

Photo: Albert Chua/The Edge Singapore