"We raise FY2025 to FY2026 earnings on better revenue traction, including higher operating costs," says Yeo in his April 24 note.
His revised target price of $1.67 is based on 12x FY2025 earnings, which is still below 15x accorded to regional peers. His previous valuation multiple was 9x earnings.
According to Yeo, Food Empire's growth in the medium term will be driven by more production facilities which will boost sales volume.
For example, Malaysia's snack production capacity is set to expand by 1HFY2025. Its first new coffee-mix factory in Kazakhstan is scheduled to open by FY2025.
It will also increase its production capacity for coffee mixes by 15%. Finally, a new freeze-dried soluble coffee manufacturing facility in Vietnam has been planned to open by FY2028.
"With medium-term growth drivers intact, Food Empire is well positioned for longer-term growth," says Yeo.
"Growth momentum remains strong and revenue continues to be driven by strong demand and sell through existing markets," he adds.
Yeo notes that in FY2024, Food Empire was able to continue to chalk up better sales in its various markets, including Russia, which enjoyed a 7.3% growth in sales in local currency terms in FY2024 but just down -1.1% y-o-y when reported in Singdollar.
On the back of strong revenue traction and sell through, Yeo says he now has a more positive revenue forecast.
"We have reduced our margin assumptions to reflect the current cost run rate due to higher coffee prices. We can expect Food Empire to pass through the higher input costs to customers eventually," says Yeo, who has raised his FY2025 earnings estimate by 8% and that for FY2026 by 7%.
For Yeo, downside risks to his forecasts include a disruption in operations due to the Russia-Ukraine conflict, and the negative effect of a change in the value of the ruble and other currencies of the former Soviet states.
Food Empire Holdings shares changed hands at $1.46 as at 9.23 am, down 1.35% so far today but up 48.98% year to date.
