SINGAPORE (Nov 10): RHB is maintaining its “buy” call on Food Empire Holdings with a target price of $1.00.
This came following the group announcing its 3Q17 earnings were up by 27% to US$7.4 million ($10 million) from US$5.8 million in 3Q16 on lower expenses.
Revenue for the quarter grew 2.7% to US$70.1 million from US$68.3 million last year, led by an increase in the group’s revenue from other markets.
Selling and distribution expenses decreased 16.5% to US$8.76 million from US$10.5 million a year ago, mainly due to a one-off classification of its advertising and promotion expenses, but was partially offset by higher manpower cost.
In a Friday report, analyst Juliana Cai says, “Since its food ingredients business’ advertising costs are lower, we expect its overall percentage of revenue spent on selling and distribution expenses to decrease over time. This would improve earnings growth in the near term.”
The group’s management said that its ingredients business is a key driver of growth moving forward.
Hence, the analyst expects the group to continue building more upstream capabilities in the near future.
Meanwhile, the gradual recovery of oil prices should lend more stability to the currencies and economies in Russia and other Commonwealth of Independent States (CIS) markets, which account for about 60% of the group’s total revenue.
“As Food Empire has a leading market share in these markets, we believe the stabilising of these economies would help to reduce negative fluctuations in the group’s income,” says Cai.
As at 11.33am, shares in Food Empire are trading 2 cents higher at 68 cents or 1.5 time FY17 book with a dividend yield of 1.3%.
