For the FY2022 ended Dec 31, 2022, Food Empire reported a record set of earnings at US$60.1 million ($81.2 million), which beat RHB’s estimates. The year’s earnings were led by Food Empire’s key markets, Russia, Ukraine, Kazakhstan, the Commonwealth of Independent States (CIA) and South Asia.
“Food Empire, which is a producer of essential food items, has not seen any major disruption for its sales in Russia and Ukraine. Retail channels and supply chains continue to operate,” notes Yeo.
“Sales volumes remain stable in both Russia and Ukraine, even though selling prices have increased,” he adds.
Barring the battle lines progressing into central Ukraine, where Food Empire’s factory is located away, Yeo says he sees a “stable outlook” for Food Empire’s earnings in these key markets.
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“As a brand owner, Food Empire was able to sustain its profitability better than distributors and retailers, especially in Russia and Ukraine,” he says.
In addition to his higher target price, Yeo has also increased his core earnings estimates for the FY2023 to FY2024 by 33% to 35% at US$52 million and US$55 million respectively.
He has also upped his FY2023 and FY2024 revenue estimates by 8% to 13% while factoring in “more efficient” operating expenses (opex) and higher operating margins at the current run-rate. To Yeo, the move is sustainable, premised on better leverage and economies of scale in Russia.
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Yeo’s new target price is based on Food Empire’s FY2023 P/E of 10x with no environmental, social and governance (ESG) discount or premium as the group’s ESG score is on par with the country median.
Shares in Food Empire, which closed at 87 cents on March 15, were trading at 6x its FY2023 P/E or -1 standard deviations (s.d.) from its P/E mean of 9x, which is “compelling”, in Yeo’s view.
While Yeo is largely positive on Food Empire, he is also careful to note that disruption of operations due to the Russia-Ukraine war, as well as currency swings in the company’s key markets are downside risks to his forecasts.
As at 12.17pm, shares in Food Empire are trading 1 cent higher or 1.15% up at 88 cents.
