To offset higher costs, Food Empire aims to raise its average selling price in several stages but Seet is still expecting a reduction in earnings, and thereby, his updated target price.
Food Empire’s 3QFY2021 gross margin dropped to 25.7%, from 37.7% in 3QFY2020, but Seet expects margins to normalise by 1HFY22, and profitability to rebound strongly in FY2022.
“This is because freight and commodity costs should normalise once the Covid-19 situation improves around the globe – governments around the world are already implementing measures to regard Covid-19 as an endemic,” says Seet.
He also notes that Food Empire has been enjoying robust revenue growth by historical standards. In 3QFY2021, it was up 8.8% y-o-y, with its core market of Russia up by 15.1% y-o-y.
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The company’s management is also optimistic on the longer term, as it has been actively buying back its shares. “We believe that this is a vote of confidence by management on the company’s prospects,” adds Seet.
“We remain confident on Food Empire’s prospects, and believe that it remains an attractive target for privatisation or a takeover, due to its attractive valuation,” he says.
As at 1.30pm, shares in Food Empire are trading at 76 cents or 17.5 times FY2021 earnings with a dividend yield of 1.5%.
Photo: The Edge Singapore/ Albert Chua
