SINGAPORE (17 Aug): RHB is reiterating its “buy” call on Food Empire Holdings with a target price of 95 cents on the back of its core markets in the CIS countries grew in line with its expectation for 2Q17.
See: Food Empire posts 64% rise in 1H earnings to US$9.5 mil
To recap, RHB highlighted in a Monday report that sales from the CIS markets were largely affected by currency fluctuations.
See: Food Empire still a currency play for now: RHB
In a Thursday report, analyst Juliana Cai says, “Management confirmed our assumption and said that its core markets are mature markets. As such, they have grown at a single-digit rate, as a whole, in local currency terms.”
Management believes that the USD/RUB rate has stabilised at about 60 RUB per USD, which falls within its budgeted range.
Cai forecasts that gross margin may widen barring any major movement in RUB.
On the other hand, the group’s upstream projects that are operating at utilisation rates of about 70-80%, also saw satisfactory 2Q17 sales contribution.
Meanwhile, the group’s “other markets” was its best performing geographical segment for 2Q17 as sales from this segment jumped 62% y-o-y and 16% q-o-q, mainly due to its non-dairy creamer (NDC) plant in Malaysia and instant coffee plant in India.
“Should sales volumes continue to grow, we think management may choose to expand these upstream projects,” says Cai.
The group’s snack plant in Malaysia is also currently operating at 80% utilisation rate and the management has plans to add an additional line to this facility.
“As such, we lift our capex projection by another USD4m to reflect this,” adds Cai.
The analyst also alerts investors to look out on potential impairments from the group’s associate, Caffé Bene, if it continues to underperform.
Shares in Food Empire are trading at 64 cents as at 10.30am.
