SINGAPORE (Jan 4): RHB Research is backing Food Empire Holdings as its top pick in the consumer sector in 2018, ahead of the highly-anticipated FIFA World Cup to be held in Russia in the middle of this year.
“We think one of the key events in 2018 that would affect consumption patterns is the FIFA World Cup. For many football fans out there, this is a time when life comes to a standstill – all in order to watch the matches being broadcasted ‘live’,” says analyst Juliana Cai in a report on Thursday.
For food and beverage (F&B) players, sales are expected to receive a considerable boost from the FIFA World Cup as consumers tend to munch and drink while watching the matches.
Cai believes the alcohol sector, in particular, will benefit as most of the matches likely to be aired during the late evenings to late nights in this part of the world.
“This is the perfect time to hit the bars and pubs and we expect a consumption of alcohol to increase significantly during the months of June and July,” she says. “Expect a surge in the sales of finger food, snacks, instant food and beverages, soft drinks and alcoholic drinks.”
In addition, with fans likely to be glued to the TV and order takeaways, Cai opines that food delivery service providers such as UberEATS, Deliveroo and Food Panda are also likely to see a surge in orders.
“Sales from online supermarkets may grow as well, with consumers ordering cartons of drinks and snacks to be consumed during the World Cup matches,” she adds.
However, RHB’s top pick to rake in the benefits from the FIFA World Cup in Russia is neither an alcohol producer nor an online supermarket operator. Instead, Food Empire mainly produces instant beverage products as well as frozen convenience food, confectionery, and snack products.
But with over 40% of its revenue derived from Russia, Cai opines that the uplift in economic activity on the back of the World Cup would help raise overall domestic consumption.
Moreover, Cai notes that there is a currency mismatch between Food Empire’s revenue, which is in Russian roubles, and its raw material costs, which is in US dollars. “Hence, any potential appreciation of the [rouble] would be a positive driver for its gross margins,” she says.
RHB has a “buy” call on Food Empire with a target price of $1.00.
“We like the management’s execution capabilities to diversify into the Asia markets and into the food ingredients business,” says Cai.
“Moving into 2018, we expect stronger margins arising from the food ingredients business as the group would require less marketing expenditure for these business-to-business (B2B) sales. We also expect to see more significant contributions coming from its new markets, such as Myanmar and China, over the next 24 months,” she adds.
As at 12.47pm, shares of Food Empire are trading half a cent lower at 70 cents. This implies an estimated price-to-earnings ratio of 12.7 times, a price-to-book ratio of 1.4 times, and a dividend yield of 1.4% for FY18.
