Despite its relatively small market cap, Food Empire has garnered substantial sell-side coverage. Post the 3QFY2023 and 9MFY2023 results, analysts from CGS-CIMB Research, Maybank Securities, RHB Bank Singapore, and UOB Kay Hian have maintained a positive outlook on the company’s prospects.
CGS-CIMB’s William Tng has kept his “add” call on Food Empire as its revenue and net profit for the 3QFY2023 and 9MFY2023 stood within his full-year estimates, and he sees the company on track to report record earnings for the whole of FY2023.
Tng’s positive rating for Food Empire considers its potential in Vietnam as a major revenue contributor, growth in the food ingredients business, and the completion of its capital expenditure cycle, enabling excess cash return to shareholders.
His target price of $1.69 is based on 11.2 times Food Empire’s FY2025 P/E or 0.1 standard deviation (s.d.) above its five-year average P/E of 8.2 times.
Maybank Securities analysts Jarick Seet and Eric Ong have also kept their “buy” call on the back of Food Empire’s “solid” 3QFY2023 results, which stood “way above consensus” as well as above their estimates, thanks to strong demand from its core markets.
“We expect demand to remain strong and margins to improve in FY2024 as Food Empire raised prices by 8% during September to counter the ruble’s depreciation. As a result, we raise our FY2023 NPAT by 10.8% and lift FY2024’s by 10.5%,” they write.
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The analysts have also increased their target price to $1.60 from $1.36 as their valuation base is rolled forward to the end of FY2024 on an unchanged FY2024 P/E of 11 times.
“With another record financial year in the making, we expect management to continue rewarding shareholders with attractive dividends, potentially more than last year, resulting in a prospective yield of 4.8% for FY2023,” they add.
With the earnings above his expectations, RHB analyst Alfie Yeo has kept his “buy” call with a higher target price of $1.53 from $1.39.
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“We continue to like Food Empire for its positive earnings momentum on the back of strong performance in 3QFY2023,” he writes.
“While revenue aligned with our expectations, gross margins have outperformed. This has been largely due to better pricing and a change in operating model that reduces exposure to forex risks with suppliers.”
He adds: “As gross margins are now ahead of our forecasts, we now raise our gross margin assumptions from 30% to 34.5%, as we believe this would be sustainable going forward.”
Yeo has raised his earnings estimates by 7% to 8%. He sees Food Empire’s valuation as undemanding at [under] 8 times FY2024 P/E, i.e. -0.5 s.d. of its historical mean.
UOB Kay Hian analysts Heidi Mo and John Cheong, who have kept their “buy” call, have also increased their target price to $1.63 from $1.36.
Their new target price is pegged to 11 times the company’s FY2024 earnings at its long-term historical mean.
“Despite implementing pricing adjustments across most of its operating markets during the year, Food Empire’s sales volumes continued to rise, demonstrating the price inelasticity of its products.”
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The UOB Kay Hian analysts add: “Additionally, Food Empire’s overall performance has surpassed our expectations in the face of currency devaluations in 9MFY2023.” “We believe this is [a] testament to its strong brand equity and experience in navigating currency fluctuations effectively.”
They expect further growth in its earnings as demand across its core markets stays robust.
The UOB Kay Hian analysts have also raised their FY2023 to FY2025 core earnings estimates by 8% and 6%, respectively, or to US$54 million ($72.9 million) for FY2023 and US$61 million for FY2025.
“With 9MFY2023 revenue reaching a record high despite currency headwinds, we believe that Food Empire has demonstrated its ability to deliver strong results and will continue to perform moving forward,” they add.
Like their peers, Mo and Cheong expect Food Empire to pay a higher dividend for FY2023, given its performance. For FY2022, the company paid a total of 4.4 cents per share.
Read our interview with Food Empire's executive chairman Tan Wang Cheow here.
