"We are optimistic about the group’s business going forward and keep an 'outperform' recommendation and increase our target price to $1.40.
For its FY2024, the company reported sales of US$476.3 million, up 11.9% y-o-y thanks to strong growth in Ukraine and other Central Asia markets. Sales in Vietnam was up as well.
However, FY2024 earnings dropped by 6.4% y-o-y to US$52.9 million no thanks to higher ingredient prices and also a step up in investments.
Despite the earnings drop, Food Empire is relatively generous with its dividends, with a total payout of eight cents per share, including a special dividend of two cents.
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The company has been constantly buying back shares too, with a total of 7.08 million shares bought back in FY2024.
"We anticipate demand to remain healthy across key markets, and the company will enjoy continued growth in FY25," says Tang, who believes that the company's capacity expansion plans will also drive higher sales.
In addition, Food Empire has maintained a strong cash position of US$130.9 million, due to its ability to generate cash flow to fund its future expansions and conduct share buybacks. Its debt level, meanwhile, was just US$45.7 million.
"Its robust supply chain and market presence across several markets also give it a competitive advantage over its peers," says Tang.
While the price of coffee bean, its key ingredient, has eased after hitting a multi-decade record in mid-February, Tang expects this cost to remain "elevated".
Food Empire, he says, will gradually adjust its selling prices so as to pass on some of the cost increases.
Even so, Tang believes consumer demand to remain resilient, thanks to a ramp-up in marketing efforts.
In addition, Food Empire is seen to tap the network of its new investor Ikhlas Capital to speed up its growth across regional markets, says Tang.
Tang's raised target price of $1.40, from $1.35 previously, is based on based on a blended valuation method comprising first, a discounted cash flow, with a terminal growth rate of 2% and a WACC of 10.0%, as well as a comparable multiples valuation with an average industry price-to-sales multiple of 0.93x.
Food Empire shares changed hands at $1.36 as at 10.01 am.
