Year-to-date (ytd), Food Empire’s share price has risen by 130%. The analysts attribute this to the group’s resilient 2HFY2024 ended Dec 31, 2024, results despite rising coffee prices, continued strong top-line growth in the 1QFY2025, and falling coffee prices supporting an earnings turnaround.
In their un-rated report, Chee and Sim first note that the group dominates the 3‑in‑1 coffee segment in Russia, Ukraine, Kazakhstan and other commonwealth of independent states (CIS) markets in East Europe, with a significant majority market share of over 60%.
Given the geopolitical risk and earnings volatility, Chee and Sim note that branded packaged food and beverage peers generally trade at lower valuations. Applying a median peer valuation of enterprise value (EV)/ earnings before interests and taxes (ebit) on FY2026 ebit, they value the East Europe branded coffee business at US$446 million.
With geopolitical risks, they see that the group is mitigating exposure through plans to establish a coffee-mix production facility in Kazakhstan to reduce reliance on Malaysia-based sourcing, costing an investment of US$30 million ($38.5 million) and a target completion by the 4QFY2025.
Meanwhile, Chee and Sim note that the company's snack business is a “relatively small” original equipment manufacturer (OEM) business with “modest” growth prospects. Applying a median peer valuation of 12 times EV/ebit on FY2026 segment ebit, they value the snack manufacturing business at US$27 million.
As for Food Empire’s food ingredient businesses in South East Asia and South Asia, the analysts have selected food ingredient players with comparable revenues of US$10 million to US$300 million to obtain their valuation.
“We value the creamer ingredient business at a median 6.4 times EV/ebit on FY2026 segment ebit, translating to US$26 million. Given its high over 20% ebit margin, we value the soluble coffee business at the upper quantile between 50th and 75th percentile, between 6.7 times to 11.1 times EV/ebit, translating to valuation range between US$181 million to US$300 million,” write Chee and Sim.
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On the group’s Vietnam instant coffee segment, they have benchmarked it against global peers in the branded consumer space with similar revenue growth at between 20% to 50%.
With the company in a “growth stage”, reinvesting most of its profits into new product innovation, Chee and Sum believe an EV/revenue valuation would be “more suitable”.
They write: “With growth at over 30%, we value it at 50th to 75th percentile range, 2.8 times to 4.4 times EV/revenue, translating to valuation range between US$307 million to US$483million. We believe the multiples applied are reasonable based on growth profile referencing similar branded instant coffee past transactions.”
They add: “In recent years, Food Empire has also made significant inroads into growing its branded instant coffee business in Vietnam and expanding its coffee ingredient business in South Asia and Southeast Asia, with a new freeze-dried soluble coffee plant planned in Vietnam.”
On Asean-based private equity fund manager, Ikhlas Capital’s US$40 million investment into convertible notes, Chee and Sim note the move as “a game changer”, anchoring valuation and providing a network for future growth opportunities.
They write: “Notably, the recent AirAsia partnership to co-develop and launch a new ready-to-drink range stemmed from this tie-up, as Tony Fernandes, Air Asia CEO is one of the investors in Ikhlas. This hints at further agreements potentially in the pipeline to broaden Food Empire’s Asean market access.”
Ikhlas transaction’s liquidity event values the company at a floor of $2.18 a share, while Food Empire’s Southeast Asia and South Asia assets are “crown jewels” with a floor value of US$800 million.
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Chee and Sim write: “Applying a median 6.4 times EV/ ebit multiple to its East Europe assets on our FY2026 ebit estimates gives a valuation of 95 cents a share, bringing total value to $2.73 a share.”
Moving forward, the company is also seeing robust demand for coffee-related food ingredients, such as soluble coffee and non-dairy creamer.
“It recently expanded its non-dairy creamer facility in Malaysia, with full utilisation expected by 2027. In the soluble coffee segment, its Indian facility is already running at full capacity,” write Chee and Sim.
To capture further growth, Food Empire has committed US$37 million to expand India’s spray-dried capacity by 60% and US$80 million to build a greenfield freeze dried facility in Binh Dinh, Central Vietnam.
The analysts add: “The company sees strong demand for soluble coffee, with Vietnam likely chosen given its strong cost economics, free trade access, strategic location for Asean market distribution, and ability to complement the branded coffee business in Vietnam in future.”
Catalysts noted by Chee and Sim include an earnings turnaround with lower coffee prices and potential acquisition targets. Conversely, risks include geopolitical uncertainties and foreign exchange (forex) risks, particularly with the Russian ruble and the resurgence of coffee prices.
Shares in Food Empire closed three cents higher or 1.27% up at $2.40 on Aug
