"We expect this to lend support to our margin projection going forward. Food Empire continues to track well with our estimates," says Yeo, who has kept his "buy" call, noting that the stock is trading at a "compelling" PEG of less than 1, with its forward P/E of 16x below his 19% FY25-28F earnings growth CAGR.
Yeo notes that the company's capacity expansion plans remain intact having started its Kazakhstan manufacturing facility’s operations in the first quarter of the year.
Next, the company is expected to increase its spray dried soluble coffee manufacturing capacity by around 60% by FY2027 in India.
Its new Vietnam freeze dried soluble manufacturing facility will then come onstream by FY2028.
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In its May 13 business update, the company reported revenue of US$160 million, an increase of 17% y-o-y, with its various markets all reporting healthy growth. Russia, in particular, was up 29% y-o-y to US$51 million on higher volumes and selling prices. A 17% appreciation in ruble versus US dollar, Food Empire's reporting currency, helped as well.
Yeo notes that the company's 1QFY2026 revenue tracks in line with his full-year revenue forecast of 15% y-o-y and thus, he has left his earnings estimates alone for now
Meanwhile, in conjunction with its 1QFY2026 business update, the company has also announced a 1 for 5 bonus issue, with a June 4 record date. Yeo's post-bonus issue target price has been adjusted to $3.36, from the pre-bonus target price of $3.87.
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For Yeo, downside risks to his forecasts include disruption in operations due to the Russia-Ukraine conflict, and the negative effect of a change in the value of the ruble and other CIS countries’ currencies.
Food Empire shares, as at 9.15am, is down 18.21% to $2.47, reflecting the effects of the bonus issue.
