In an after market announcement on July 17, Food Empire announced a partnership with Capital A Bhd, an investment holding company, to co-develop and launch a new range of ready-to-drink beverages.
Specifically, the collaboration between their respective subsidiaries – Empire International and Santan Food Services – will kick off with a Vietnamese iced coffee product to be sold on AirAsia flights and through retail channels across the region.
This collaboration also paves the way for Food Empire and Santan to explore further co-branded and private label initiatives across a wider range of beverage and snack products.
The initial product rollout will span both in-flight and on-ground touchpoints.
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Passengers flying with AirAsia can look forward to a co-branded Vietnamese iced coffee experience onboard.
On the ground, the same product line will also be made available at selected retail outlets under the Santan brand.
"The collaboration with Santan is, in our view, one of a number of business-related initiatives that Ikhlas Capital could be working on together with Food Empire," says Tng. "We believe there could be further business collaboration announcements in time to come."
While Tng acknowledges that the current collaboration with Santan may not be immediately earnings accretive for Food Empire, he expects it to improve the company’s brand awareness in Asia and allay investor concerns that Ikhlas Capital is only investing in for the 5.5% coupon on the redeemable equity notes issued by Food Empire.
Tng says that any potential share price weakness from the REN is a buying opportunity.
In addition, with the government soon to allocate $5 billion to fund managers to invest in smaller cap stocks, Food Empire stands to be a beneficiary and can enjoy a re-rating to towards its 3 sd P/E of 17x, suggesting a target price of $2.73.
In contrast, Tng had previously valued the company at $2.28, which is 14.2x FY26F P/E, 2s.d. above its 9-year average P/E of between FY2017 and FY2025.
Re-rating catalysts, according to Tng, includes improving operating margins on stabilising market demand; sustained market share in its key market, Russia, and last but not least, a resolution to the Russia-Ukraine conflict.
On the other hand, key downside risks include the escalation in Russia-Ukraine conflict affecting its Russian operations, and the ruble’s depreciation vs. the US$, leading to lower revenue in US$ terms, which is Food Empire's reporting currency.
Food Empire shares gained 6.13% to $2.25 as at 11.59 am.
