Bryan Wu Tue, Jul 05, 2022
RHB analyst Jarick Seet has maintained his “buy” call on Food Empire Holdings with a target price of $0.95, representing an 83% upside of the counter’s price of 52 cents on July 5 and a yield of 4%.
The reiteration comes off the back of Food Empire’s sale of its industrial office at Harrison Road to a Lian Beng Group subsidiary for $49.25 million.
“We believe this will be positive for Food Empire as its current office is underutilised and the sale will help to reduce debt, shore up its balance sheet, while boosting its cash position and record a sizable one-off gain of $20.54 million,” Seet writes in his July 5 report, noting that none of the group’s production is done in Singapore.
With rising interest rates, the sale of this non-core asset will also help Food Empire to reduce debt on its balance sheet by $20.7 million, which was tagged to the property’s loan, increasing Food Empire’s net tangible assets (NTA) from $0.405 to $0.431 after the transaction.
“We believe management will have better use of the sales proceeds to further grow the business, and may also resume its share buyback programme,” says the analyst.
Despite geopolitical conflicts, demand from the group’s main markets in Russia, Ukraine and Kazakhstan — which comprise a single segment — as well as the Commonwealth of Independent States (CIS) remains strong, with revenue only declining by 5.5% and 5.8% y-o-y thanks to Food Empire’s management’s efforts to refocus its marketing to increase attention in South Asia and other markets as a result of Russia’s invasion of Ukraine.
“We believe Food Empire’s business will continue to be resilient in its core markets — the demand for instant mix coffee remains sturdy, even with the ongoing war,” writes the analyst.
“In fact, it gives Food Empire an advantage, as foreign competitors are leaving such markets, which would benefit the players that stay. These include Food Empire, which has the largest share of these markets,” Seet adds.
RHB believes that Food Empire’s 1QFY2022 ended March results should quash any doubts over the strength and diversity of its business. Food Empire posted a growth of 7.6% in revenue and 24.0% in net profit before tax during that period.
As at 4.00pm, shares in Food Empire are trading at 51 cents, giving it a FY2022 recurring P/E of 7.12x with a dividend yield of 4.2%