SINGAPORE (April 11): RHB Research is reinitiating coverage on Food Empire Holdings with a “buy” call and a target price of 76 cents.
In a report on Tuesday, RHB analyst Juliana Cai says Food Empire’s results are believed to have “bottomed out”.
The group swung back into profitability in the fourth quarter ended Dec 31 with earnings of US$2.9 million ($4.1 million), from a net loss of $3.1 million a year ago.
(See: Food Empire swings back into profitability in 4Q with $4.1 mil of earnings)
“With 45% of its revenue generated in Russia, we think this is a good investment proxy to leverage on the strengthening Russian rouble,” says Cai.
According to Cai, Food Empire’s dominant 50% market share in the Russian instant coffee mix sector has allowed it to raise its average selling prices by 80% to mitigate the decline of the rouble in 2015 without significant impact to volumes.
“Moving forward, we believe the strengthening of RUB would help to offset increases in raw material prices. As such, we expect stronger gross margins in 2017,” she says.
In addition, Food Empire is gaining traction in Vietnam, where revenue is estimated to have surged to US$35 million last year, from US$7 million in 2014.
“Today, Vietnam forms the majority of Indochina sales, which contributes about 17% of Food Empire’s total sales,” says Cai. “We project overall Indochina sales to register 18% CAGR over FY16-19.”
Cai believes Food Empire could continue to pursue growth in Asia, with China has the next potential growth market.
Meanwhile, Cai notes that Food Empire CEO Sudeep Nair has been increasing his stake in the company.
“Any corporate action would be a catalyst to the company’s share price,” Cai says.
As at 12.20pm, shares of Food Empire are trading 2 cents higher at 59.5 cents.
