Despite the resurgence of Covid-19 in Food Empire’s core markets, RHB Group Research believes that the group’s latest 3QFY2020 results were decent. With that, analyst Juliana Cai has kept her “buy” call on Food Empire with a higher target price of 80 cents from 72 cents previously.
To recap, Food Empire on Nov 11 issued a business update for its third quarter ended September, which posted a net profit after tax of US$6.3 million ($8.5 million), some 19.5% lower y-o-y. Revenue was also 8.5% lower y-o-y at US$70.3 million, as a result of the depreciating Russian and Ukrainian currencies, as well as lower sales from Vietnam due to Covid-19 disruptions.
See: Food Empire posts 19.5% drop in 3Q profit to $8.5 mil
Excluding the currency exchange depreciation, Food Empire would have recorded a net profit of US$9.0 million, 2.0% higher y-o-y, which was above the analyst’s expectation.
While revenues were down y-o-y across all the markets, it has shown strong sequential improvement from 2QFY2020. Management highlighted that demand for their instant coffee products has been stable.
Barring strict national lockdowns that might result in operational and logistical issues, Cai expects sales volume to remain fairly resilient despite the pandemic. With that, she believes that the worst is over for Food Empire.
“We expect the full-year to end strongly and raised our FY2020-2022 recurring PATMI by 14%, 4% and 1%,” says Cai, whose estimations on the group’s recurring net profit are US$27 million for FY2020, US$29 million for FY2021, and US$32 million for FY2022.
However, due to the volatility surrounding the RUB and the related currencies of the Commonwealth of Independent States (CIS), Cai has lowered her target P/E from 12 times to 11 times.
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“Given that the group is able to generate a fairly resilient set of earnings amidst the challenges posed by the pandemic, we expect it to maintain last year’s final and special dividends totalling 2 cents, per share. This raises our expected dividend yield to 3.4%,” she adds.
Moving into FY2021, the group is expected to focus on maintaining decent earnings amid the challenging environment. Hence, advertising and promotion expenses are expected to be kept low, while keeping revenue and market share stable.
On the positive side, its second India plant should commence production next year as the country lift its restriction for business travels to facilitate the commissioning of the plant.
As at 3.10pm, shares in Food Empire are trading 2.6% higher at 59 cents or 1.0 times FY2020 book with a dividend yield of 3.4%.
