Analysts from Maybank Securities, RHB Bank Singapore, PhillipCapital and UOB Kay Hian have come away positive on Food Empire’s F03 prospects after their visit to the company’s Vietnam operations from Aug 29 to 30.
“Food Empire has the third-largest market share of three-in-one ice coffee after Nestle and a local brand G7,” write Maybank analysts Jarick Seet and Eric Ong.
They have kept their “buy” call and target price unchanged at $1.36 in their Sept 1 report.
Following their visit, the analysts are estimating that Food Empire’s Vietnam revenue will grow by 10% to 15% in FY2023 and by 5% to 10% in FY2024 due to the resumption of marketing and new product launches in the coming quarters.
One of the new product launches is a “premium version” of its best-selling coffee, to be named Café Pho Gold. One of Food Empire’s new products, a three-in-one bubble tea named Hillway, has also enjoyed a good response so far.
“Modern trade is also growing well and currently contributes up to 15% [to] 20% of Vietnam revenue from 0% two to three years ago,” note Seet and Ong.
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“All in, we expect contributions from Vietnam to Food Empire to increase by about 25% [to] 35% in the next two to three years,” they add. “Food Empire Vietnam targets [its] revenue to grow by 10% annually.
They are also upbeat about Food Empire’s performance as the company is looking to raise its prices by 7% to 15% across its markets in September. The move will be conducted in two tranches, mainly to combat the impact of a weaker Russian ruble, which has depreciated significantly in the past few months due to the Russian war with Ukraine.
“We expect softness in revenue and gross profit in 2HFY2023 as it typically takes about six months for price increases to take effect but performance should pick up in 1QFY2024,” the analysts note. “Overall, we expect Food Empire’s margins to gradually improve after it hikes prices to offset the depreciation of the ruble.”
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Overall, the analysts at Maybank like Food Empire, which has demonstrated a “resilient” business model. So far, the company’s performance has been “strong” despite an ongoing war in its core markets of the Commonwealth Independent States (CIS).
“We remain confident in management’s execution capability, as it has a strong track record. We also believe Food Empire will continue to buy back shares, which should provide good support to the stock price,” the analysts say.
RHB analyst Alfie Yeo has kept his "buy" call and target price of $1.39 as he continues to "like" Food Empire for its "growth prospects".
"We recently visited Food Empire’s Vietnam operations and came away positive on the market’s outlook and growth prospects. The company’s operations there stand to benefit from strong demographics and economic growth potential, with a population of [around] 100 million people (where [around] 50% are below 35), and a FY2024 GDP growth is 6.4%," says Yeo.
"Vietnam is currently a significant contributor to Food Empire’s Southeast Asian revenue, where it has built a market presence for over 10 years – establishing itself as the third-largest 3-in-1 instant coffee player," he adds. "The key strategies ahead: Move into product variants and penetrate further with the Café Phó brand."
PhillipCapital analyst Paul Chew also likes Food Empire’s prospects following his visit.
In an unrated report dated Sept 5, Chew noted that the company had built up a market share of about 14% in the country’s instant coffee market which was worth around US$400 million ($544.2 million).
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Food Empire established its Maccoffee brand in Vietnam around a decade ago since the introduction of its flagship Café Pho in 2013.
“We believe in Food Empire’s key 3-in-1 brand, Café Pho. The competitive advantage is the brand image as best tasting coffee served with ice (70% of coffee consumption is with ice) and deep penetration into the street shops (or general trade) distribution network,” Chew writes.
Some of his observations from his trip to Vietnam’s Ho Chi Minh City include brand stickiness among consumers. Consumers in the country also seem to prefer strong-tasting coffee, which Café Pho offers even with ice. Another advantage to Food Empire is Ho Chi Minh City’s consumers’ preference for instant coffee.
At the same time, Chew notes that the city’s younger generation prefers tea and consumes their coffee at coffee shops as social drinkers. “Instant coffee drinkers usually start in their mid-30s,” he notes. “To capture this group of customers, frequent taste tests, product display visibility and distribution is critical.”
In his view, Food Empire’s growth will stem from three key drivers, which include the organic growth of about 3% to 5% per annum within the instant coffee market. Chew’s estimates are in line with Vietnam’s GDP and new coffee consumers. Food Empire is also set to enjoy market share gains from expanding geographically thereby capturing more instant coffee consumers. Finally, the company’s new products for their local and export markets may capture more consumers where sentiment is currently “soft” and consumers are more “promotion sensitive”.
UOB Kay Hian analysts John Cheong and Heidi Mo have also kept their "buy" call and target price of $1.36, saying that their Vietnam trip left them "more optimistic" on Food Empire.
"We visited Food Empire’s office and manufacturing facility in Vietnam to learn more about its market presence and production capabilities. We also witnessed its strong distribution network in both general trade and modern trade, supported by a 930-strong sales team," they write.
"With the influence of macro factors, increased promotional activities and new product launches, Food Empire has room for growth in the Vietnam market, despite being a top three player with a 14% market share," they add.
Share in Food Empire closed 5 cents higher or 4.9% up at $1.07 on Sept 5.
