On track for record net profit
- Food Empire Holdings’ (FEH) 9M23 revenue was in line at 73%/72% of our/Bloomberg consensus full-year expectations.
- 9M23 net profit was also deemed in line, at 82%/84% of our/Bloomberg consensus full-year forecasts.
- Reiterate Add, as we believe FEH is on track to achieve a record core net profit of US$51.4m in FY23F (the highest since its listing in 2000).
9M23 performance in line with expectations
? 9M23 revenue grew by 6.7% yoy as demand for FEH’s products remained strong. At 73%/72% of our/Bloomberg consensus’ full-year estimates, 9M23 revenue performance was in line with expectations.
? 9M23 net profit was also deemed in line, at 82%/84% of our/Bloomberg consensus’ FY23F forecasts.
? Given the higher unit volume sold and higher average selling prices, 9M23 gross profit margin improved by 5.6% pts to 34.8% (from 29.2% in 9M22).
? 9M23 net profit was impacted by foreign exchange loss of US$1.4m. Excluding the foreign exchange loss, net profit would have been higher at US$43.7m (instead of US$42.3m).
? As at end-Sep 23, FEH’s net cash was US$115.6m.
Outlook remains positive
? FEH is seeing robust demand for its products in all the markets that the group operates in, according to its 9M23 business update press release.
? In its 9M23 business update, FEH commented that it will continue to grow its presence in Vietnam with targeted advertising and promotions.
? The group expects its non-dairy creamer (NDC) and potato crisps businesses in Malaysia to remain resilient and stable despite continuing stiff market competition. FEH expects its new plant for NDC to commence production in the next few months.
? In India, the group’s coffee manufacturing plants continue to operate at maximum capacity, with strong demand and favourable pricing conditions for its freeze dry coffee.
? FEH expects its pricing power and vertically integrated operations to be able to offset raw material price increases.
? The key risks that management remains wary of are: a) global geopolitical developments and economic situation and the potential impact on its supply chain, and b) currency volatility in the markets that FEH operates in.
Reiterate Add as outlook remains positive
? We reiterate our Add call on FEH, with an unchanged TP of S$1.69. Our Add rating is premised on: a) the potential to grow Vietnam as a new major revenue contributor, b) the potential to grow its food ingredients business, and c) the end of the capex cycle, allowing FEH to return excess cash to shareholders.
? Our TP of S$1.69 is based on 11.2x FY25F P/E, 1.0 s.d. above its 5-year (2019-23F) average P/E of 8.2x, given our expected FY22-25F EPS CAGR of 7.0%, 4.06% dividend yields in FY23-25F, and its established brands.
? Key re-rating catalysts include: 1) improving operating margins on stabilising market demand, and b) maintaining its market share in its key market, Russia.
? Key downside risks to our Add call are: 1) an escalation in the Russia-Ukraine conflict affecting its Russian operations (Russia accounted for 34.2% of 9M23 revenue), and 2) depreciation of the Russian Ruble against the US$, leading to lower revenue in US$ terms.
