"We believe that this will be positive for Food Empire as it continues to break into more markets in South-East Asia," states Seet in his July 21 note, where
Santan is a unit of Capital A, the holding company of AirAsia and headed by renowned Malaysian businessman Tony Fernandes.
While Food Empire in its earlier years was known for chalking up a market leading position in Russia and other former Soviet republics, Asia has become its biggest growth driver.
To fuel this growth, Food Empire is actively adding capacity in its end markets such as Vietnam and Malaysia.
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Seet points out that given how Russia was Food Empire's largest revenue contributor, the company had to bear with a valuation discount against its peers.
"With Russia no longer the dominant contributor and its Asia expansion plans in place, we believe the successful diversification justifies a P/E re-rating with a lower discount to its peers," he reasons.
Besides the narrowing valuation gap, Food Empire is seen to further improve its margins as well, as price hike adjustments kick in.
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For its upcoming 1HFY2025 earnings report due next month, Seet is expecting strong core earnings growth.
From a previous valuation multiple of 13x FY2025 earnings, Seet has raised this metric to 17x, which leads to a higher target price of 42.
Food Empire shares gained 0.45% to trade at $2.25 as at 10.11 am.
