Record net profit, record dividends
- FY23 revenue of US$425.7m (+6.9% yoy) was 1.4%/2.6% above our/ Bloomberg consensus forecasts.
- FY23 net profit of US$56.5m (-6.0% yoy) was 10.0% above our forecast but in line with Bloomberg consensus expectation.
- Reiterate Add with a higher TP of S$1.84 as Food Empire continues to execute well in its key businesses and markets.
FY23: A new record
Food Empire Holdings (FEH) reported FY23 revenue growth of 6.9% yoy to US$425.7m, a new record for the group. FY23 revenue was 1.4% above our and 2.6% above Bloomberg consensus expectations. Gross profit margin improved from 29.8% in FY22 to 33.2% in FY23 as FEH saw higher volume sales and increased average selling prices in all its key markets in FY23. Net profit also reached a record US$56.5m, 10.0%/4.3% above our/ Bloomberg consensus’ forecasts. While FY23 headline net profit saw a 6.0% decline, this was due to the presence of a US$15.0m one-off gain from the disposal of non-core assets in FY22. Excluding this one-off item, FY23 net profit would have grown 25.3%. FEH declared a final DPS of 5.0 Scts and a special DPS of 5.0 Scts. FEH continues to generate strong operating cashflow. In FY23, its net cash from operations was US$50.6m vs. US$57.5m in FY22 (excluding the one-off gain in FY22).
Management positive on outlook
FEH expects demand for its products to remain strong across its key markets. While the company has guided that the price for robusta coffee (used in its branded coffee mix business) is at an historical high, we think FEH has the brand power and market share to offset this impact via selective increases in its average selling prices. FEH has also completed the expansion of its non-dairy creamer manufacturing plant in Malaysia and expects commercial production to commence in 1H24F.
Reiterate Add
We raise our FY24-25F revenue forecasts by 1.4-1.5%, leading to 8.5-8.7% increases in our FY24-25F core EPS forecasts (FEH’s share buybacks also reduced its number of shares outstanding by 1.5%). Given the higher FY25F core EPS forecast, our TP rises to S$1.84, still based on 11.2x FY25F P/E, 1.0 s.d. above its 5-year mean (2019-23F). Our Add rating is premised on: a) its potential to grow its operations in Vietnam as a new major revenue contributor and b) its potential to grow its food ingredients business, and c) the end of its current major capex cycle in FY23, allowing FEH to improve its dividends. To be prudent, we assume FY24-26F DPS of 5.0 Scts but we believe special dividends remains possible. Key re-rating catalysts: 1) improving operating margins on stabilising market demand, and b) maintaining its market share in its key market, Russia. Key downside risks are: 1) an escalation in the Russia-Ukraine conflict affecting its Russian operations, and 2) depreciation of the Russian Ruble against US$, leading to lower revenue in US$ terms.
